–How about socialized banking?

Mitchell’s laws: To survive, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Continuing the discussion from the previous post, “Closing the gap between rich and poor: Eliminate all local taxes,” how about the elimination of all private banking?

What if the federal government took over all banking functions and eliminated private banks? What would be the advantages and disadvantages?

No bank ever would become insolvent. There would be no “runs” on banks by depositors. Savings would be 100% protected. Clearly, an advantage.

The lack of a profit motive would eliminate “credit default swaps” and other strange investment derivative beasts that helped lead to the Great Recession. Advantage.

The lack of a profit motive also would eliminate the temptation to lend to credit-poor borrowers. Advantage.

The absence of outrageous, multi-million dollar salaries would translate into less expensive banking services, plus services offered in “bank deserts,” where the poor are required to use expensive, neighborhood check-cashing services. Advantage.

There would be no need for reserves and for the massive bureaucracy needed to track reserves, nor for the massive compliance bureaucracies, nor for FDIC insurance. Advantage in efficiency.

No need for Fannie Mae or Freddie Mac. Advantage.

There would be no need for the Fed or for the likes of Greenspan and Bernanke. Advantage.

Bankers would hate the idea. Huge advantage.

Frankly, I’m having trouble thinking of disadvantages. O.K., I can think of one disadvantage. Government workers have the reputation of being without imagination or the willingness to take risks. Since lending always entails risk, and lending against new ideas involves even more risk, might federally owned banks choke off innovation or on the other hand, be subject to political pressure to grant bad loans?

I’m sure that would be the objection from those who believe the private sector can do no wrong and the government can do no right. But there are non-bank people in the private sector, known as “venture capitalists” who could provide investment capital.

Perhaps the question about socialized banking boils down to whether you feel banking should be considered just another profit-making business or a public service. Unless convinced otherwise, I suspect the negatives of privately-owned banks outweigh the positives.

What do you feel?

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

–Closing the gap between rich and poor: Eliminate all local taxes

Background: The politicians, the media and the old-line economists worry about how our Monetarily Sovereign federal government will pay its bills, despite the absolute fact the government can pay any bills of any size, any time.

Perhaps those same politicians, media and economists, rather than thinking of ways to support a government that needs no support, should worry about how the middle- and lower-classes will pay their bills. I don’t know whether to laugh or to cry when I hear our leaders insist that federal taxes must equal federal spending (i.e. a “balanced budget”), while doing nothing to make sure the people of America have balanced budgets.

Caring more for the financial health of our financially omnipotent government than for our financially suffering poor- and middle-classes, demonstrates uncommon ignorance. Even more remarkable is the acquiescence of the lower classes to this outrageous, Tea/Republicanism.

If Bill Gates and Warren Buffet refused to give a dime to charity, because they wished to run their own “balanced budget,” the world would be outraged at such meanness. Yet, even Gates and Buffet are not Monetarily Sovereign. So what should we say about our government, which unnecessarily wishes to balance its budget on the backs of the citizens?

In several posts I have explained that lifting the poor does not involve bringing down the rich. Very simply, lifting the poor requires lifting the poor.

On July 11, 2010 I posted
“A partial solution for the gap between rich and poor: Education.” The post suggested that fully paid-for education, not just K-12, but all the way through college and beyond, would be one step toward lifting the poorer classes. I also suggested that the government actually pay people a wage for attending college.

I also have suggested that eliminating FICA, the single most costly tax on working people, would help lift the lower classes. Now, in typical Obama style, we almost, but not quite, will eliminate FICA. We temporarily will eliminate half of it. That is the symptom of this administration: Always too little and too late

There is another tax, or rather a group of taxes, that powerfully affect the lower classes: Local taxes. Cities charge them. Counties charge them. States charge them. Even the federal government charges them. What if all local taxes were eliminated?

Though the federal government neither needs nor uses tax income, the states, counties and cities, being monetarily non-soveriegn, do. So how will these local governments be supported?

Here’s a “What if?” for you to think about: What if the federal government offered to support every state, county and city on a per-capita basis, if these governments voluntarily would forego collection of all local sales and income taxes?

Consider Chicagoans. They pay taxes to Chicago, to Cook County and to Illinois. Here are the taxes residents pay just to the state of Illinois:

Aircraft Use Tax, Automobile Renting Occupation & Use Taxes, Bingo Tax & License Fees, Business Income Tax, Charitable Games Tax & License Fees, Chicago Home Rule Municipal Soft Drink Retailers’ Occupation Tax, Cigarette & Cigarette Use Taxes, Coin-Operated Amusement Device Tax, County Motor Fuel Tax, Dry Cleaning License Tax & Fee, Electricity Distribution & Invested Capital Taxes, Electricity Excise Tax, Energy Assistance & Renewable Energy Charges, Environmental Impact Fee & Underground Storage, Gas Tax, Gas Use Tax, Hotel Operators’ Occupation Taxes, Individual Income Tax, Liquor Gallonage Tax, Manufacturer’s Purchase Credit (MPC), Metropolitan Pier and Exposition Authority (MPEA) Food & Beverage Tax, Motor Fuel Taxes, Oil & Gas Production Assessment, Personal Property Replacement Tax, Property Tax Information, Pull Tabs & Jar Games Tax & License Fees, Qualified Solid Waste Energy Facility Payments, Real Estate Transfer Tax, Sales & Use Taxes, Sales of Aircraft & Watercraft by Lessors, Tax Increment Financing (TIF), Telecommunications Tax, Telecommunications Infrastructure Maintenance Fees, Tire User Fee, Tobacco Products Tax, Use Tax for Individual Taxpayers, Vehicle Use Tax, Watercraft Use Tax, Withholding (Payroll) Tax

Not only are these taxes costly for residents (The payroll tax alone is 5%.), but they are costly to collect. What if the federal government said to Illinois, if you will forego your $25 billion in total annual taxes, we will give you $2,000 per person. Since Illinois has about 13 million people, that would come to $26 billion. If you consider deducting for collection costs, the state would come out millions ahead. What would the citizens say and what would the politicians say?

Then there is Cook County. It will collect $2 billion in taxes next year. With a population of 5 million, making the same deal with the federal government would require $400 per person.

Finally, Chicago: It collects about $3 billion a year in taxes. With a population of about 2.7 million, federal support would amount to about 1,100 per person.

So, replacing all Chicago, Cook County and Illinois taxes would amount to $3,500 per person. If every city, county and state in America opted to forego taxes, the federal government would supply a total of about $1 trillion dollars.

In 2010, the federal government spent about $3.5 trillion, so would an additional $1 trillion (29%) to eliminate all city, county and local taxes in America be “affordable”? Would it cause the inflation, the “inflationistas” always worry about? For perspective, 2009 federal spending increased 29%, and 2010 spending increased another 20% on top of that. Are they affordable? Do we have inflation? Have any federal checks bounced?

Admittedly, there would be many issues to consider, not the least of which is the probability that local politicians like taxes. They are a source of power. But what would you, as a taxpayer, think about the elimination of all local taxation and the associated budget (collection) savings? Something to think about.

The U.S. government is Monetarily Sovereign. It’s about time we make use of that asset.

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

MONETARY SOVEREIGNTY

–A timely reminder: Here is the cause of recessions and recoveries

Lest we not forget:
When do we have recessions and what causes recoveries?

Reductions in federal debt growth lead to recessions. Increases in federal debt growth cause recoveries.

Think of this graph the next time someone tells you the federal debt should be reduced.

Oh, and by the way:
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.

Show this to your Congressperson and your favorite columnist.

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

MONETARY SOVEREIGNTY

–The end of the euro as we know it. Greece, Ireland, Portugal, Italy, Spain too.

The PIIGS are monetarily non-sovereign, which means they cannot control their own money supply. One of the PIIGS, Greece, soon will leave the euro and re-adopt the drachma. It must.

As I said way back in 2005, “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.”

The euro is a failed system. Long term, all monetarily non-sovereign entities require money to come in from outside their borders, either via money imports (exports) or via assistance from another government. There are no exceptions to this.

The U.S. became Monetarily Sovereign in 1971. It can create all the money it needs; it can pay any bills of any size, any time. But, you and I, the states, counties and cities all are monetarily non-sovereign. You and I receive income – i.e. money coming in from outside our “borders.” The states and counties receive money from exports, tourism (a form of export) and aid from the federal government.

My village, Wilmette, receives income from our neighboring big city, Chicago. Many of our residents work in Chicago and are paid by Chicago firms. We then take some of that Chicago money and pay taxes to Wilmette. That is how monetarily non-sovereign Wilmette survives.

Which brings us to Greece. Here are some excerpts from the excellent blog, “naked capitalism”

. . . Germany is activating “Plan B”, telling banks and insurance companies to prepare for 50pc haircuts on Greek debt. . . Germany is “studying” options that include Greece’s return to the drachma.

German finance minister Wolfgang Schauble . . . said there would be no more money for Athens under the EU-IMF rescue package until the Greeks “do what they agreed to do” and comply with every demand of `Troika’ inspectors.

Yet to push Greece over the edge risks instant contagion to Portugal, which has higher levels of total debt, and an equally bad current account deficit near 9pc of GDP, and is just as unable to comply with Germany’s austerity dictates in the long run. From there the chain-reaction into EMU’s soft-core would be fast and furious.

Let us be clear, the chief reason why Greece cannot meet its deficit targets is because the EU has imposed the most violent fiscal deflation ever inflicted on a modern developed economy – 16pc of GDP of net tightening in three years – without offsetting monetary stimulus, debt relief, or devaluation.
[…]
The Eurozone is addicted to a failing remedy. Even if it could get its integration act in gear, austerity, as we predicted, is only making matters worse.
[…]
So much for the idea that economists had learned from financial crises and developed better reflexes. Economics has to an increasing degree become an exercise in promoting ideologies to defend the privileges of the rentier classes. They look to be about to be hoist on their own petard. Unfortunately, a very large number of innocent bystanders will suffer along with them.

Though the PIIGS are monetarily non-sovereign and the U.S. is Monetarily Sovereign, there is at least one parallel: Austerity breeds austerity. Tax increases and federal spending decreases reduce economic growth, increase unemployment, and reduce the quality of life for all residents.

This is a lesson not yet learned by the Tea/Republicans, old-line economists and the media. These slow learners, by demanding a reduction in the federal deficit, effectively will make the U.S. monetarily non-sovereign, and will guarantee a return to recession if we are lucky and depression if we are not.

Greece is the bellwether. That nation demonstrates what happens to monetarily non-sovereign entities, long term. Though it is the Tea/Republicans who strive to make the U.S. monetarily non-sovereign, perhaps these politicians can be excused their ignorance. They are, after all, politicians. The economists cannot be so excused. They should know better.

Austerity breeds austerity, in the PIIGS and in America. Unless we see a dramatic change in economics understanding, the last chapters of the Age of America now are being written. These chapters will describe a life of misery for you, your children and your grandchildren.

It’s not to late to rewrite this ending. The first necessary step is to understand that a growing federal deficit is necessary — today, tomorrow and forever.

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

MONETARY SOVEREIGNTY

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