–Still clueless in Chicago. The Chicago Tribune emulates the Cubs

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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With each game played, the Chicago Cubs continue to set world records for incompetence. It has been over a century since this team has won the championship of its sport, surely an unmatched record in all of athletics. And the beat goes on.

The Chicago Tribune of “Dewey Defeats Truman” headline fame, continues in the same tradition of incompetence. Consider how much wrong information is crammed into these four sentences from June 18th Tribune editorial titled, “Lo and behold,” just the latest in a long, long string of utterly wrongheaded pieces.

The national debt threatens to crush our economic future . . . The members of the House and Senate have to curb every part of government including entitlements such as Medicare and Medicaid. They have to make much more painful cuts than ethanol subsidies. And they have to stop such claptrap as the argument that ending the ethanol subsidy would be a “tax increase.”

Lets examine each sentence:

“The national debt threatens to crush our economic future.”
Forget that the Tribune never has explained how this crushing will occur. Instead focus on the fact that the so-called “debt” is not functionally related to federal spending. It merely is an artifact of the gold standard, when the government was not Monetarily Sovereign and needed to borrow its own dollars.

Contrary to popular myth, the federal government could spend $100 trillion tomorrow and not incur even one penny’s worth of “debt.” The “debt” merely is a legal requirement that the federal government create T-securities from thin air, then exchange them for dollars it previously created from thin air – in the amount of dollars it newly creates from thin air. The U.S. could end the debt today, merely by changing the law, and not creating any T-securities. No T-securities = no debt. And no “crushing.”

“The members of the House and Senate have to curb every part of government, including entitlements such as Medicare and Medicaid.”
Again, as always, no reason is given for the destruction of programs designed specifically to help the middle and lower classes. How does it benefit America for people, who cannot afford private health insurance, to be denied health care? Presumably, this editorial was written by someone in the upper 1% income category. How about, “Let them eat cake,” Chicago Tribune?

“They have to make much more painful cuts than ethanol subsidies.”
While I hold no special brief for ethanol subsidies, and there are good arguments against them, one thing they do accomplish is adding money to the economy, which is stimulative. But what are these other “painful cuts,” and why do we want to inflict pain on the American public? What is the benefit of the agony the Tribune favors? How do federal spending cuts benefit us? The Tribune never has said.

“And they have to stop such claptrap as the argument that ending the ethanol subsidy would be a ‘tax increase.’”
Ah, does their incompetence never cease? Ending the ethanol subsidy would reduce the federal deficit, which functionally is identical with a tax increase. Whether the government spends less or takes in more, the arithmetic is the same: The economy winds up with less money.

Yes, the Chicago Tribune editors and the Chicago Cubs both are incompetent, and have been for a long time. There is one important difference, however. I believe the Cubs actually try to get it right, despite the difficulty of defeating all the other teams. The Tribune editors seem not to care less, despite the ease with which they could publish the truth. It’s just less work to parrot the popular myths than to endure the pain of actually learning something. Or is this a reflection of cowardice, the fear of coming out against common opinion?

Either way, the beat goes on.

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

–Inflation is up. No, inflation is down. Now do you understand?

These two articles ran today (6/15/11) Here is the Reuters article:

May core CPI rises most in nearly 3 years (Reuters)

– Core consumer inflation rose at its quickest pace in nearly three years in May and a regional manufacturing gauge contracted this month, underscoring the headwinds facing the economy.

The Labor Department said on Wednesday its Consumer Price Index, excluding food and energy, increased 0.3 percent, the largest gain since July 2008, after rising 0.2 in April.

Core inflation was lifted by steep rises in motor vehicle and apparel prices and economists had expected the measure, which is closely watched by the Federal Reserve, to rise 0.2 percent last month.

And here is the AP article:

Consumer prices rise by smallest in 6 months (AP)

By CHRISTOPHER S. RUGABER, AP Economics Writer, WASHINGTON – Americans paid more for food, cars and clothing in May. But overall consumer prices rose by the smallest amount in six months, slowed by the first drop in energy costs in nearly a year. Consumer Price Index rose 0.2 percent in May, the Labor Department said. That’s down from April’s 0.4 percent increase. Food costs rose 0.4 percent. But energy costs fell 1 percent.

This is what makes Americans crazy. Inflation is up and inflation is down — in the same month. The reality is that inflation neither is up nor down. It cannot be measured in one-month increments. It barely is measured in one-year increments. The data are too uncertain for finer measurement.

But there is one way to predict inflation: Predict oil prices. As we have seen in previous posts, it is the price of oil, not federal deficit spending, or any other factor, that is the ultimate determinant of inflation.

Here is an interesting graph which seems to show that the year-to-year movements of inflation compares reasonably well with 20% of the energy price movements.

If this relationship were to continue, one would expect that a 10% increase in energy prices would correspond with a 2% increase in inflation. Tell me how much oil prices will rise or fall in the next year, and I’ll tell you how much inflation we’ll have — at least if history is repeated.

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

MONETARY SOVEREIGNTY

–Don’t amputate the federal budget; never again amputate a leg

The July/August issue of DISCOVER magazine contained an amazing article titled, “The Healing Power Within,” by Adam Piore. Here is the revealing subtitle:

A remarkable substance extracted from pig guts enables the body to regenerate lost muscle tissue. Next up: Pioneer Stephen Badylak is working on treatments that would allow patients to regrow entire limbs.

Think of it: “ . . . regrow entire limbs.” Science fiction? Here are a few more excerpts:

The strange sensation in his right thigh muscle began as a faint pulse. Slowly, surely it was becoming more pronounced. Some people would have thought it impossible. But Corporal Isaias Hernandez could feel his quadriceps getting stronger. The muscle was growing back. . .Generally, people never recovered from wounds like his. Flying debris had ripped off nearly 70 percent of Hernandez’s right thigh muscle . . . Remove enough of any muscle and you might as well lose the whole limb, the chances of regeneration are so remote. The body kicks into survival mode, pastes the wound over with scar tissue, and leaves you to limp along for life.

The article goes on to explain how pig tissue was inserted into the muscle, and some miracle ingredient in the tissue made the muscle regenerate. Then began a long, difficult search for exactly what substance caused this effect.

Researchers thought that rather than the pig tissue itself, the magical properties were in the structural scaffolding that holds tissue together; it’s called extracellular matrix (ECM). After a great deal of experimentation, it was found that the scaffolding actually disappears during regeneration, so something in the scaffolding must be doing the job. It turns out that components called “cryptic peptides” caused the adjacent tissue to create stem cells – those basic cells embryos use to create all the various tissues in our body, from bone to organ to blood – and these stem cells were creating the missing muscle tissue.

I can’t do the article justice in this short post. You should buy a copy of DISCOVER and read the article yourself. There is however one paragraph I must share with you:

The challenge now is replicating Hernandez’s success in other patients. The U.S. Department of Defense, which received a congressional windfall of $80 million to research regeneration medicine in 2008, is funding a team of scientists based at the University of Pittsburgh’s McGowan Institute for Regenerative Medicine to oversee an 80-patient study of ECM at five institutions. The scientists will attempt to use the material to regenerate the muscle of patients who have lost at least 40 percent of a particular muscle group, an amount so devastating to limb function that it often leads doctors to perform an amputation.

That $80 million is one of the myriad initiatives the federal government funds every year – initiatives that are invisible to the voters who wish for a smaller government – initiatives without which thousands of benefits would not accrue to the American public – initiatives without which Corporal Hernanzez would not have a working leg..

If the government were not to spend that $80 million, and the regenerative research were not done, none of us in the public would be any the wiser. We would not know muscle and limb regeneration were possible, much less happening. The loss of those $80 million seemingly would be harmless.

There is an important lesson in all this, a lesson ignored in the headlong rush to reduce government: The federal government funds thousands of activities to benefit us, activities that never would occur without federal dollars, activities we never even would know existed. So when someone says to cut federal spending in any federal department, neither they, nor anyone else, knows what actually is being cut. Your children’s and grandchildren’s lives could be adversely affected, and you would be none the wiser.

Sure there is federal waste (though even wasteful spending is economically stimulative). Sure the government can be dishonest, clumsy, overbearing and dictatorial. Sure, the federal government does things each of us dislikes (though others may like).

But on balance, we need government support for thousands upon thousands of products and services that provide our loved ones and us with a better life. We give thanks for our plentiful and clean food and pure water, our safe air travel, our roads, our insured bank deposits, our vaccines and medicines, our safe borders and the untold numbers of valuable research projects, all provided by the federal government, and all at no cost to us.

(Yes, at no cost, because federal taxes do not pay for federal spending. In a Monetarily Sovereign nation, federal government spending is free to its residents.)

There is a hidden, though tragically real, penalty for meat-cleaver cuts to the federal budget and the refusal to increase the so-called “debt ceiling.” The penalty is a meaner, crueler, shorter, less safe life for each of us. No one can point specifically to what will be lost. But this you must know: Cutting federal spending will make your life worse.

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

MONETARY SOVEREIGNTY

–The double dip recession has gone from probable to almost certainty.

The double dip recession has gone from probable to almost certainty. While no prediction in economics can be absolutely certain, this one comes pretty close, depending on what the federal government does.

Background for this prediction can be found at SUMMARY where I briefly summarize much of what is contained in the rest of the posts.

One of the tables on that page shows the relationship between federal surpluses and depressions:

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.

Each depression began with a series of federal surpluses. No surprise here. A federal surplus happens when more money flows out of the economy in the form of taxes, than flows into the economy, in the form of deficit spending. A federal surplus drains the economy of money.

A federal surplus is an economic deficit.

Semantically, we have everything backwards. The positive-sounding word, “surplus,” actually is negative for the economy, and the negative-sounding word, “deficit,” actually is positive for the economy.

Because money is the lifeblood of an economy, removing money takes the life out of the economy. As recently as 2000, President Clinton (should have) learned this lesson, when his federal surpluses (economic deficits) led to the 2001 recession, which ended only when the federal government began to pump more money into the economy (i.e. ran larger “deficits”).

Readers of this blog have seen this graph, before:

The graph compares deficit growth (aka the rate of money growth) with recessions.

The graph demonstrates that:

1. Since we went off the gold standard in 1971, we have had six recessions
2. All but one have followed periods of reduced deficit growth
3. During and immediately following each recession, the rate of money growth increased or at worst, remained level – except for the most recent recession.

Prior to the most recent recession, money growth fell, and predictably, we had a recession. Then, during the recession, deficit growth rose as the federal government pumped in stimulus money, which is what the government generally does to fight a recession.

But here is the unique and frightening part. Immediately following this recession, the rate of money growth fell off a cliff. This is the first recession after which we have seen such a sharp drop in federal money creation. The reason, of course, is the insistence of the Tea/Republican insistence on money-growth reduction.

While the American people are having terrible difficulty paying their bills, the federal government, never has had, and never can have, difficulty paying its bills (unless Congress enforces a debt ceiling). Yet, for reasons unknown, the Tea/Republicans prefer the economy to run a deficit and the federal government to run a surplus. Totally senseless.

The sharp drop in the rate of money creation, leaves no room for surprise that the unemployment rate has not improved. With the economy remaining fragile, the Tea/Republicans resisting deficits, and that unprecedented fall-off in the economic surplus, I fear we are headed for an even worse recession than the terrible one we just suffered.

And when it comes, I predict the Tea/Republicans will blame it on too much federal spending. I liken this to bleeding an anemic, then blaming the subsequent health deterioration on too much blood.

Meanwhile, the Tea/Republicans have convinced the public that federal spending will cause an inflation and higher taxes, ignoring three facts:
1. The lack of deficit spending causes recessions, a far more immediate problem.
2. Deficit spending has not been the cause of inflations (See: INFLATION.)
3. There is zero relationship between taxes and deficits in a Monetarily Sovereign nation.

In summary, by resisting federal “deficit” spending, i.e. by draining the anemic patient of blood, the Tea/Republicans will cause the next recession, and unless the government comes to its senses, this recession will be deeper, longer and more tragic than anything since the 1930s.

Be prepared to suffer at the hands of ignorance.

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

MONETARY SOVEREIGNTY

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