Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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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Let’s begin with this basic truth. The nations using the euro struggle for one reason, and one reason only. They surrendered the single most valuable asset any nation can have: Monetary Sovereignty.

That is the logical conclusion. Yet even more than logic is involved.

TIME
The Future of the Euro: Why Sentiment Alone Can’t Save the Union
By Michael Schuman April 30, 2012 |

Being an American journalist reporting on the troubles of Europe is sometimes an ego-damaging experience. I regularly encounter economists, officials and other Europeans who take the attitude that we Yanks just don’t understand the euro. Americans, in their view, simply analyze the euro based on its perceived benefits and costs.

But, I’m told, the euro is much more than a mere economic instrument. It is a symbol of the grand mission of European integration, a tool to ensure democracy and peace on a continent too often ravaged by war.

The euro, therefore, means more to Europe than mere mathematical calculations of debt and growth can tell us, and the leaders and voters of the euro zone value the common currency based on what it means to Europe as much as what it does for Europe.

I agree, understand and empathize with this. There is nothing like war to encourage strange bedfellows. Russia built NATO. The thirteen original Colonies suffered extreme danger. They compromised. Without the threat from the U.K., I doubt there would be a U.S. today.

Historically, Europe has been the focus of almost continual strife. The very existence of so many countries, so many languages, so many cultures, so many climates, all confined to a relatively small space — a mob of angry strangers crammed into a phone booth — guarantees war.

So, I am sure the love affair with the euro is psychologically, if not overtly, related to the desire for peace.

Unfortunately, the euro nations went only half way. In an inverted “cake-and-eat-it-too” plan (no cake and no eat it), they surrendered their Monetary Sovereignty, but received nothing to replace it.

A sovereign nation should be able to control its currency supply, or at minimum, have an outside source of currency. But who controls Greece’s euro supply, and who provides a source of euros? No one and no one.

Same question for France, Italy, Ireland, Portugal, et al. Who controls their euro supply? What is their source of euros? Being monetarily non-sovereign, these nations cannot control their euro supply, cannot create euros, and have no outside source of euros.

Compare the euro nations with the American states, which also are monetarily non-sovereign. While they too, cannot control their money supply, they do have a source of dollars: The federal government.

When the federal government spends dollars domestically, it adds those dollars to the money supply within states (and when people pay taxes to the federal government, this reduces the money supply within states).

The long term survival of any monetarily non-sovereign government requires money coming in from outside its borders. Germany survives by exporting (i.e. importing euros). The American states survive by having, as a group, a positive balance of payments with the federal government.

The larger the federal domestic deficit, the healthier are the states. The economic formula is: Federal Deficits + Net Exports = Private Saving.

On a regular basis, the 17 countries that use the euro manage somehow to overcome their varied and often competing interests, to forge sweeping agreements to try to strengthen it. Compare that to the gridlock blocking decision making in the U.S., with a mere two major political parties.

Humans are crisis oriented. We tend to endure modest hardship and danger, rather than change. Only extremes seem to move us.

Today’s two American political parties are in no danger. So, they move away from compromise, vacating the middle.

But imagine a third party rising up and claiming a majority. What would the Republicans and Democrats do? I suspect they would combine into a “Democan” party, with the slogan, “The enemy of my enemy is my friend.”

Yet at the same time, I have to wonder if that commitment will be enough to preserve the monetary union. Or will the weight of Europe’s economic problems eventually overwhelm the emotional and political connection Europeans have to the euro? In other words, will the euro’s fate be decided by Europe’s attachment to the idea of the euro, or by economic reality?

As we have said for years, the euro nations have two, and only two possible solutions to a problem dragging them down the hole of recession:

1. Return to Monetary Sovereignty by re-adopting their individual, sovereign currencies
or
2. Combine into a single republic, ala the United States — a United States of Europe.

Which way will Europe go?

I believe they will follow choice #2, because choice #1 returns them to the ongoing wars of yesteryear. There will be a U.S.E., the only questions being, when and how.

They might do it gradually. The EU might begin giving (not lending) more euros to each nation. It might begin as a trickle and segue to flood status. This could require no major political changes. The EU, which itself is Monetarily Sovereign, simply could begin to credit each euro nation’s checking account.

Even this modest act would be traumatic for Europe, because of their aversion to inflation. I suspect war paranoia will trump inflation paranoia.

Or the merger could be more dramatic, with the EU functioning more like the U.S. central government, including an elected President and a Congress.

But first, times will have to get bad enough, perhaps not so bad that the euro nations all reincarnate as Greece, but worse than today. A Europe-wide recession, simultaneous with growth on other continents (for comparison), probably would move things forward.

When viewed from a distance, the euro must have seemed an benign idea. “Let’s all use the same currency as a start of more cooperation.” But Europeans didn’t realize they were giving their souls to those devils that lay in the details, only one of which was, “Who’s in charge?”

Having surrendered their Monetary Sovereignty, they now must surrender more of their political sovereignty, to make the whole thing work.

(As opposed to the U.S.’s presidential system, I’d guess the U.S.E. would adopt a parliamentary system. It provides for an easier transition, and it’s what Europe understands. But that may be a long way off.)

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. 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

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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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R. Bruce Dold is the Editorial Page Editor of the Chicago Tribune, a gentleman with whom I have corresponded on many occasions. Being the Editorial Page Editor of one of the world’s major newspaper requires, at the very least, some understanding of language. But strangely, I believe Mr. Dold does not understand the meaning of the prefix “non.”

If a nonsmoking friend were having a birthday, Bruce might gift her an ashtray. If asked for a nonverbal comment, he might give a speech. Perhaps, he’ll eat something nondigestible, and spend his life looking for a nonexistent cure.

Why do I speculate so? Because he seems to have no idea about the differences between Monetarily Sovereign and monetarily non-sovereign.

Here are excerpts from an editorial in today’s (April 29, 2012) Chicago Tribune:

Enough posturing. Act.
We can soak in the same cold bath as Europe. Or we can make our debt stop growing right now.

Immediately, he puts us “in the same cold bath as Europe,” clearly not understanding how different we are, we being Monetarily Sovereign and the euro nations being monetarily non-sovereign.

Every minute of every day, federal taxpayers in this country borrow another $3 million. With Washington running its fourth trillion-dollar deficit in four years, those taxpayers soon will owe a total of $16 trillion — an amount larger than the U.S. gross domestic product: As of now, we owe more than everything we produce in a year.

That might be true of a monetarily non-sovereign nation, which having no sovereign currency, does not have the unlimited ability to create it. But it is not true of a Monetarily Sovereign nation, which neither needs nor uses tax money to pay its debts. Its taxpayers do not owe those debts, nor do they pay for any government spending.

Where will this fast and furious pace of spending (entitlements are our biggest category) and borrowing (the Chinese are our biggest creditors) deliver us?

The Europeans went decades without asking themselves that question. As they took on more debt, much of it for fabulously generous social programs, interest payments eclipsed the ability of governments to comfortably meet them. Now rescue schemes are forcing those governments to do what their weak self-discipline never could: cut spending. Because those governments are huge players in their domestic economies, cutbacks choke growth. In the turmoil:

• Britain has double-dipped back into recession. Recession also grips Italy, Spain, Belgium, the Netherlands, Greece and the Czech Republic.

• With Monday’s resignation of its prime minister, the Netherlands, the eurozone’s fifth-biggest economy, is the sixth nation to see the crisis defrock its leader.

• In Spain, where unemployment approaches 25 percent, the potential need for a massive European Union bailout has grown so great that dark wits are calling the country “too big to save” — a play on banks once thought “too big to fail.”

• In France, Socialist challenger Francois Hollande is favored to take the presidency from Nicolas Sarkozy, who has supported German Chancellor Angela Merkel’s insistence on eurozone austerity to reduce nations’ debts; Hollande exploits anti-German resentments by saying the French Resistance inspires him.

• Portugal’s bonds now are rated as junk.

• And while some politicians call for a reversal of austerity policies, with more government borrowing and spending, German central bank chief Jens Weidmann nailed the tendency of pols to weasel out of budget restraints: “If policymakers think they can avoid this (debt reduction), they will try to,” he told The Wall Street Journal. “That’s why the pressure has to be kept up.”

All of the above, but Britain and the Czech Republic, are monetarily non-sovereign. Britain (like the United States, for that matter) acts as though it were monetarily non-sovereign, by limiting its deficit spending. The Czech Republic is caught between the desire to stimulate via deficit spending and the European Union finance ministers misguided criticism of “excessive” deficits.

Bruce, because your editorial wrongly indicates zero difference between Monetary Sovereignty and monetary non-sovereignty, I’ll help you by listing just a very few of those differences:

*A Monetarily Sovereign nation is sovereign (in complete control, absolute authority) over its nation’s sovereign currency. It can create its sovereign currency at will, destroy it at will and spend it at will. A monetarily non-sovereign (restricted, submissive) nation does not control its nation’s currency. It has no sovereign currency. It cannot create it at will, destroy it at will nor spend it at will.

*Because a Monetarily Sovereign nation has the unlimited ability to create its sovereign currency, it neither needs nor uses its sovereign currency obtained from others. That is, it neither needs nor uses taxes or borrowed currency. It creates all it needs. A monetarily non-sovereign government does need and use taxes and borrowed currency.

*For the above reason, a Monetarily Sovereign nation’s taxpayers do not pay for government spending or debts, while a monetarily non-sovereign government’s taxpayers do pay for government spending and debts.

*A Monetarily Sovereign nation pays creditors by creating its currency ad hoc. A monetarily non-sovereign government needs to pay creditors by transferring tax and borrowed currency from its own bank accounts to the creditors’ bank accounts.

*A Monetarily Sovereign government never can run short of its sovereign currency. It can pay any bill of any size, any time. A monetarily non-sovereign government can run short of the currency it uses, and can be unable to pay bills.

*A Monetarily Sovereign government can run unlimited and endless trade deficits and current account deficits, and never needs its sovereign currency to come in from outside its borders. To survive long term, a monetarily non-sovereign government needs currency coming in from outside its borders. Germany, for instance, survives by exporting.

So Bruce, before next April 15th, please learn the difference between deductible and nondeductible, or taxable vs nontaxable. Before you go on a diet, learn the difference between caloric and noncaloric, or between toxic and nontoxic. Before you try to hop on a train, know the difference between moving and nonmoving.

And before you write another editorial, learn the difference between Monetarily Sovereign and monetarily non-sovereign.

Bruce, I assume you are wealthy and part of the 1%. You seem all too anxious to cut entitlements, which benefit the 99%. But, please Bruce, no more nonsense. If the 99% ever catch on to what you are doing, they’ll stop buying the Chicago Tribune, at which time you’ll be a nonworker with a non-job and completely nonplussed.

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

==========================================================================================================================================
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