Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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People have asked me whether Ben Bernanke “really” understands Monetary Sovereignty, or whether he is playing ignorant because that currently is politic. Judge for yourself.

Time Magazine: Stocks Fall as the Fed Launches Operation Twist
Posted by Stephen Gandel Monday, October 3, 2011

On Monday, Ben Bernanke launched his latest effort to boost the economy. The stock market, for one, seems skeptical it will work.

The plan, which has been dubbed Operation Twist, is for the Fed to cash out of $400 billion worth of its short-term bonds and replace them with long-term debt. The first move came Monday morning when the Fed bought $2.5 billion worth of long-term U.S. Treasury bonds. The Fed has been buying U.S. Treasury bonds ever since the financial crisis in an effort to drive down interest rates and boost lending and hopefully the economy.

Note that line: “The Fed has been buying U.S. Treasury bonds ever since the financial crisis in an effort to drive down interest rates and boost lending . . . “

Is this classic debt-hawk ignorance, or what?. They want the federal government, which can afford anything, to borrow less. But they want the private sector, which is struggling to pay its bills, to borrow more.

Federal deficit spending creates money. Private sector deficit spending (aka borrowing) also creates money. But, federal deficit spending is far more stimulative than private deficit spending. (See: Is federal money better than other money? > In fact, there is a serious question as to whether private deficit spending is stimulative at all.

So, why would any sane person want the private sector to borrow more and the federal government to borrow less?

I award Mr. Bernanke one dunce cap for this effort. Why just one? Because he has been put in the impossible position of trying to grow the economy without having the tools to do so, while Congress, which does have the tools, is doing everything it can to shrink the economy.

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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In the post titled, “You never will know what you have lost,” I describe how deficit cutting invisibly reduces our standard of living.

Here is yet another example of how eliminating the federal government’s ability to enrich the economy will affect us all:

Top federal watchdog faces budget cuts
Washington Post, By Ed O’Keefe, 10/03/2011

(The Government Accountability Office), the nation’s most prominent federal watchdog, often credited with identifying potential taxpayer savings, may soon fall victim to steep government spending cuts.

(This agency) stands to lose up to $50 million in funding this year that its defenders say would force widespread layoffs and the closure of its regional offices. Current budget proposals also would force the agency to detail the costs and manpower used to publish each of its reports, a task that supportive lawmakers fear could politicize the nonpartisan office.

More people on the unemployment rolls. That should “help” the economy.

GAO publishes more than 1,000 reports and audits annually, and agency officials frequently testify before congressional committees to detail their findings. Despite its relatively spot-free reputation and the billions of dollars in potential savings it has identified in recent years, House and Senate appropriators responsible for drafting the legislative branch budget seem determined to force the GAO to reduce, as part of a 5.2 percent drop in all congressional spending.

As Washington seeks ways to cut back, “the buck shrinks here,” said Sen. Ben Nelson (D-Neb.), chairman of the Senate appropriations subcommittee on the legislative branch. He said his proposed cuts “are real and will force Congress and the agencies on Capitol Hill to live with less.”
[…]
His proposed budget also would require GAO to include detailed spending reports with each publication it releases that account for how many employees worked on the report, the total hours spent producing it and a tally of related travel expenses.

Nelson’s proposals are infuriating several of his Senate colleagues, particularly Sen. Tom Coburn (R-Okla.), a frequent critic of government spending who often relies on GAO to help him root out cases of waste, fraud and abuse.

Requiring detailed spending reports would “be an overly burdensome mandate that would further consume GAO’s dwindling resources without providing any obvious cost benefit,” Coburn and four other colleagues wrote last week in a letter sent to Nelson’s subcommittee. No other congressional office — including the Congressional Research Service, which also publishes thousands of reports — is required to provide detailed spending totals, they said.

Day by day, we die the death of a thousand invisible cuts, at the hands of people who know not what they do – like doctors who would cure anemia by bleeding the patient with leeches.

As I said in that earlier post:

The list goes on and on: The lame who might have walked. The blind who might have seen. The children who might have given to America. The tornados and hurricanes and earthquakes that might have been foreseen or stopped. The money that investors might have saved. The inventions never invented. The recessions and depressions that might have been avoided. The wars that might have been won or prevented. The life-saving drugs that might have been developed. The people who might not have died too soon. The beauty never created. The ideas lost. The better world that might have been. You never will know.

And we trade all this potential for the reality of a meaner, uglier, less elegant life, especially for the lower classes, who will be affected most by deficit reduction, though we all will be affected. What a waste, given the tools we’ve been given, that we intentionally should deprive ourselves and our children and our grandchildren of the benefits a society can offer, and instead retreat toward the days of hardscrabble anarchy.

What have we lost? What will we lose tomorrow? You never will know.

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Science buffs probably enjoyed reading the many articles appearing recently in newspapers and magazines all over the world, exemplified by today’s editorial:

Was Einstein wrong?

The latest in a long line of challengers (to Einstein): scientists at the European Organization for Nuclear Research (CERN). Last week they startled physicists around the world – and a few nonphysicists, too – by declaring they had recorded subatomic particles called neutrinos treveling saster than the speed of light. . .

. . . A cornerstone of Einsteinian theory is that nothing can travel faster than the speed of light, about 186,000 miles a second. . . .

“It would be amazing, everyone would be jumping up and down like crazy,” Cal Tech theoretical physicist Sean Carrol told us. “It would certainly be the most surprising discovery in the last 100 years.”

Reality check: The CERN experimenters are probably wrong.

This editorial goes on about how unlikely this speculative finding is, but despite this low probability, the editorial warrants a full 1/3 page space in a major market newspaper, the – you guessed it – Chicago Tribune.

The point of this blog post: A one-time, low probability, almost-sure-to-be-found-wrong finding, by one group of scientists is given prominent space, while a high probability, almost-sure-to-be-found correct, decades-long finding by dozens of respected scientists worldwide is never given even a mention in the same paper. I’m talking about Modern Monetary Theory / Monetary Sovereignty.

Why the difference?

Is it because the Tribune’s editors, and like minded editorial writers, realize they know nothing about physics, and so will print anything that physicists send around? Is it that the editors have no solid beliefs or background in physics, and don’t want to look like idiots by disagreeing with physicists?

Contrast physics with economics: The editors know economics, or believe they do. After all, economics is just money – spending, saving, earning, borrowing, owing, paying, investing, losing. While the Tribune editors know nothing about neutrinos, they surely know everything about dollars. So while they will accept almost anything the physicists say about neutrinos, the editors will accept nothing about money that differs from what they already know.

So that’s it? That’s why news about a complex, unknowable (to the editors) subject receives the respect news about a familiar subject doesn’t. Right?

No, I don’t think so. I think the real problem is the Tribune’s and virtually all newspapers’ editors have too much, as the saying goes, “skin in the game.” Before 1971, the end of the gold standard, they spoke of the need to reduce deficits, and never changed after 1971. They have preached the same “debt-is-a-ticking-time-bomb” sermon since at least 1940, and are so committed they cannot bring themselves to admit to the world they have been wrong, wrong, wrong. Even worse than admitting you’ve been wrong is admitting your errors have forced politicians to pursue schemes damaging to America.

If Monetary Sovereignty just were counter-intuitive, I suspect curiosity would drive the editors to look at the data. They are, after all, newspaper people, accustomed to seeking out hidden facts and bringing them to their readers. That is their world. It’s why they delight in writing editorials about neutrinos.

But they don’t seek the unfamiliar facts about our economy. They turn away. They close their eyes. They scream “Na, na, na, I can’t hear you,” and that only could mean, “I don’t want to hear you.” In the Chicago Tribune’s case, even the man who is President, Publisher and CEO has his hands clapped tightly over his ears.

Throughout history, it always has been hard to convince honored doctors their favorite treatment has been killing people. Call it the Semmelweis syndrome.

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Time Magazine published online (9/29/11) an article by Roya Wolverson titled, “Will China help save Europe?” In the article, she said:

There’s been a lot of talk this week in China about whether it should swoop in to save the eurozone. Loading up on Italian debt is one possibility, which could keep Europe’s overall bailout tab in check and boost market confidence.

Another idea is to create an EU-China bond. Unlike an EU-only bond (a concept that hasn’t gained traction among fuming Germans and Greeks), an EU-China bond would rope richer China into the deal by offering a better interest rate than it’s getting on, say, U.S. Treasury bonds. And, backed by the heft of the German economy, the bond would offer a low-risk bargain for investment-savvy Beijing.

I don’t know why she refers to this as “saving” Europe. Lending more money to monetarily non-sovereign nations that already are indebted beyond their ability to pay, doesn’t sound like much of a save. It’s like rescuing a drowning non-swimmer by dragging him into deeper water.

There are only two long term solutions for the euro nations. Either:

1. Each to become Monetarily Sovereign by re-adopting their own sovereign currencies
or
2. The EU to give (not lend) euros to member nations ala the U.S. federal government giving money to the monetarily non-sovereign states.

My guess, the euro nations will be so desperate they finally will be ready to move away from their “lend-more-money-to-cure-indebtedness” philosophy. One or two nations might opt for solution #1, but the majority will be dragged, kicking and screaming into #2.

What will this mean? Done properly, without Tea Partyesque nonsense, solution #2 not only could save Europe, but it could make the euro the most powerful currency in the world, supplanting the dollar as the world’s reserve currency. Those European nations not currently using the euro probably would jump in, and down the line, even non-European nations could join.

Looking way, way into the future, I even could imagine the euro becoming the entire world’s sole currency.

By the way, Ms. Wolverson also said:

Of course, one perk for the Chinese would be boosting its status as a global financial player. But when you have a billion citizens restlessly awaiting their chance to climb out of poverty, it’s worth thinking twice about draining your rainy day fund.

Readers of this blog know Monetarily Sovereign nations like China (and the U.S.) neither have nor need a “rainy day fund.” They create all the money they need by spending, i.e. by instructing creditors’ banks to mark up creditors’ checking accounts.

Ms. Wolverson belongs to that vast army of columnists ignorant about Monetary Sovereignty.

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

Rodger Malcolm Mitchell