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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Just to show that ignorance of Monetary Sovereignty is not restricted to Americans and the European Union, here comes Japan:

Yahoo: Finance
Insight: Japan slowly wakes up to doomsday debt risk
By Tetsushi Kajimoto, Leika Kihara and Tomasz Janowski

TOKYO (Reuters) – Capital flight, soaring borrowing costs, tanking currency and stocks and a central bank forced to pump vast amounts of cash into local banks — that is what Japan may have to contend with if it fails to tackle its snowballing debt.

Not long ago such doomsday scenarios would be dismissed in Tokyo as fantasies of ill-informed foreigners sitting on loss-making bets “shorting Japan.” Today this is what is on bureaucrats’ minds in Japan’s centre of political and economic power.

Japan is Monetarily Sovereign, so even if borrowing costs “soared,” and currency “tanked,” the central bank would have no difficulty whatsoever pumping vast amounts of cash into local banks or anywhere else.

“Shorting Japan” is a fools play — unless they do something stupid, like raising taxes.

“It’s scary when you think what could happen if there’s triple-selling of bonds, stocks and the yen. The chance of this happening is bigger than markets think,” says a senior official.

These officials would be the ones pulling the levers in the command center if Japan were to be hit by a debt crisis.

Japan cannot have a “debt crisis.” Remember, it’s Monetarily Sovereign.

The government borrows more than it raises in taxes, and its debt pile amounts to two years’ worth of Japan’s economic output, the highest debt-to-GDP ratio in the world. It costs Japan half of the country’s tax income just to service its debt.

Being Monetarily Sovereign, Japan does not need or use taxes to pay its debts. It merely creates yen.

Technocrats who might have once dismissed worst-case scenarios are now beginning to take them seriously as doubts grow over whether Japan is ready to act and as Greece’s budget meltdown stokes the euro zone’s debt crisis.

Greece is monetarily non-sovereign. No comparison with Japan.

Conventional wisdom is that Japan is safe as long as it keeps covering about 95 percent of its borrowing needs at home.

As usual, conventional wisdom about Monetarily Sovereign governments is wrong.

But to some economists who have followed Japan for years, the frustration is that the country has yet to solve its underlying problems of slow economic growth and stubborn deflation.

So all that money “printing” to pay all that debt has not caused inflation?? It must make debt-hawks crazy not to be able to use their Weimar Republic scare example.

As long as those conditions persist, it will be difficult to crawl out from under the debt burden.

Why would slow growth and deflation make it difficult for a Monetarily Sovereign nation to pay its bills?

“If you wind the clock back five or 10 years, they’d have been saying all the same things and probably with a very similar time horizon of three to five years,” said Richard Jerram, chief economist at Bank of Singapore.

Yes, the same as in the U.S. Since 1940 or earlier, our debt-hawks have been saying our federal debt is unsustainable. Failure to be right never deters them.

While officials stress it is too early for a definite contingency plan, there seems to be an agreement that financial institutions will be the hardest hit because of their big government bond holdings, and that the Bank of Japan will play a key role in shoring up the sector.

Why hit at all? Japan will continue to service its bonds, just as always.

In an event of a surge in yields, the Bank of Japan could flood money markets with cash the way it did after the March 11 earthquake and act as a market-maker for the bond market, matching bids and offers if they fail to meet, officials say.

The finance ministry could also be forced to redeem bonds ahead of maturity to calm investors, says Yoichi Miyazawa, former vice finance minister and upper house lawmaker for the opposition Liberal Democratic Party.

Right. No problem. Easily done. That’s the beauty of Monetary Sovereignty (Hello Greece, are you listening?)

Miyazawa, who led work on the party’s crisis plan, says the worst case scenario could involve bank bailouts and Greek-style austerity if debt servicing costs soared, threatening to eat up a big portions of revenues. “The government should show a concrete roadmap for rebuilding public finances, including the kind of reforms adopted by Greece, which involve painful belt-tightening, slashing welfare spending and boosting sales and other tax rates,” he said.

He’s nuts. It’s guys like him who would doom Japan.

Finance Ministry . . . simulations show adding 1 percentage point to borrowing costs would add 1 trillion yen to about 22 trillion in borrowing costs over the course of one year, rather than double them as some commentators warn, because the spike would only affect newly issued and rolled over debt.

Yawn. Another 1 trillion yen would be needed. So? That would require one push of a computer key.

What sets Japan apart from Europe’s crisis-hit nations is that it borrows almost exclusively at home and with domestic savings of some 1,500 trillion yen ($19 trillion) it can do it paying less than 1 percent for 10-year bonds.

And herein lies the ignorance. What sets Japan apart is that it is Monetarily Sovereign, while the euro nations are monetarily non-sovereign. Those who do not understand the difference, do not understand economics.

Deflation and the yen’s long bull run foster a “patriotic” home bias among households and institutions, turning private savings into quasi public money, always there and easily accessible. That explains how a nation with one of the lowest tax burdens in the OECD and a stagnant economy never seemed to have trouble rolling out hefty stimulus packages or subsidizing social security.

Gee, what a mystery. A Monetarily Sovereign nation has low taxes, high debt, and never has trouble spending money. And no inflation! Debt-hawks, how could this be?

It’s sad to see Japan undergoing the same death-by-ignorance that the U.S. suffers at the hands of the economically unknowing. Here is a perfect example for Americans — a nation with twice the debt/GDP ratio as ours, yet having no difficulty paying its bills and no inflation. Yet our leaders do not learn from what is right in front of their eyes.

I hope Japan doesn’t panic and begin needlessly to raise taxes, as our Congress and President wish to do. That would make them as foolish as we are.

Regarding the headline of this post, the Japanese “crisis” is economic ignorance, and yes, it already has happened here.

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.
==========================================================================================================================================

The President of the United States, 100% of Congress and virtually all of the media and old-line economists believe the federal deficit is too high. The Tea Party wants reduced federal spending to “get the government off our backs.” America is close to unanimous in the belief that increased deficits are unaffordable and will put us in the same position as Greece.

As you readers know, America is Monetarily Sovereign, while Greece is monetarily non-sovereign. Not to understand the difference between the two is like not understanding the difference between up and down, black and white, rich and poor. Yet none of the abovementioned President, Congress, media, economists or Tea Party understand this fundamental difference, much less care enough to learn. They are stupid with intent.

On June 5, 2005, I gave a talk at the University of Missouri, Kansas City, in which I said, “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.”

Today, Greece, is forced to restrict its deficits, aka adopt “austerity.” Greece has no choice. Being monetarily non-sovereign, it cannot create the euros it needs for economic growth, or even to pay past bills. By contrast, the Monetarily Sovereign U.S. does have a choice. We do have the unlimited ability to create our sovereign currency, the dollar. We do have the unlimited ability to pay any bills of any size. We never can go bankrupt.

But those who are ignorant of Monetary Sovereignty tell us we must “live within our means”, a nonsensical, blatantly ignorant statement, when discussing a Monetarily Sovereign nation. They tell us so-called “printing money” will cause inflation, and they give the hoary, old, inappropriate example of the Weimar Republic, a situation which bore zero resemblance to the U.S. Comparing the U.S. to the Weimar Republic would be as foolish as saying don’t drive your car because the Titanic hit an iceberg.

Since the U.S. became Monetarily Sovereign on August 15, 1971, there has been no relationship between federal deficit spending and inflation. See: “Federal deficit spending doesn’t cause inflation; oil does.” The facts are there, but facts seem not to matter to our “thought” (if you can call it that) leaders.

Which brings me to the subject of this post. Because our “thought” leaders want us to adopt a Greek-style austerity, I’d like you to see what happens when citizens are ruled by fools who demand deficit reductions..

Thank you to the outstanding Naked Capitalism blog, for bringing to the world’s attention, a letter written by the sister of Dimitri Lascaris, a lawyer with family in Greece. The post is titled: “Austerity Policy Destroying Greek Society”

Here are excerpts from that letter:

Dimitri…the decline in our income and therefore in many facets of our lives began in the fall of 2009. In our family carpentry business, we began to go without work intermittently, but for longer and longer stretches as time progressed. Customers who owed us large amounts of money couldn’t pay even 5% of the balance owing on their account.

Our customers of course gave priority to the payment of bank loans, or worse, they gave priority to the payment of credit card debts they had incurred in order to secure the basic necessities…rent, water, electricity, health insurance and food. Cash has became more and more scarce for our customers, and therefore for us.

In a very competitive job market, Greek parents sought to equip their children to secure a job as a civil servant. For that purpose, Greek parents commonly employed ‘frontistiria’ (or supplementary education through tutoring) as early as the onset of elementary school. The need to eliminate the financial burden of tutors was one of the first signs that people were struggling to survive.

All you see is a succession of empty storefronts with rent signs and often a deluge of unopened mail just inside the door. The few businesses that have managed to stay open have gigantic banners proclaiming 50-70% reductions.

Walking through what used to be crowded and bustling markets now feel like a Sunday stroll through deserted urban centers. Going to take care of business at The National Bank of Greece was once an all-day affair…most often now, you can zip in and out in less than 5 minutes.

On the other hand, the line-ups to make payments at the Greek electrical company have become longer and longer. There you find very volatile crowds of people fighting with employees to defer payments through payment plans, or to have their electricity reconnected after having had it cut off as a result of the “haratsi,” which is a government property tax incorporated into the electrical bill, often quoted by legal experts as one of the many unconstitutional acts this government has committed.

What right does the electrical company have to assume the role of a tax collector, and to deprive us of electricity when we become unable to pay the arbitrary taxes issued at the drop of a hat to generate more money for the EU and IMF?

Suicides, drug abuse, prostitution and crime have infiltrated village life. In our village, which has slightly more than 1000 inhabitants, I was a victim of theft by a drug addict just outside my front door. I have been to the funerals of two friends who were murdered here in the village by their assailants when they were unable to produce money on demand.

We, as well as many people we know, are experiencing a strained home environment as a result of financial difficulties. Now we call our customers to beg them on a regular basis to pay something, anything, toward the debts they owe us, because food or heat in the dead of winter has become an issue for us. We now rely on help from family members. People we know go to retirees in their families to ask for contributions from their meager pensions.

We are all now at the mercy of anyone with money at hand to help our family survive. At almost 52, when your stamina and endurance have started to wither away, life feels like a chore. However, children have a way of making you ‘plug’ back into life, even if it’s only to focus on just one more day.

This Greek tragedy is not caused by Greece being profligate. It is caused by Greece’s leaders having voluntarily surrendered the single most valuable asset Greece had — financially more valuable than all that nation’s land, more valuable than all that nation’s buildings, bridges, rivers, lakes and dams, financially more valuable even than that nation’s population — its Monetary Sovereignty, the ability to create their sovereign currency.

Thus, Greece is trapped into austerity. The people running America want us act like Greece, i.e. to act as though we are monetarily non-sovereign by reducing our deficits, and in acting like Greece we will become Greece.

Wake up, America. Read the above letter again. This is the fate our leaders will create for us and for our children. We will be at the mercy of the 1%.

And we can’t say we weren’t warned.

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