Tag: debt hawk

–More debt-hawk injuries to America

An alternative to popular faith

Here is yet another example of many such instances (See: DAMAGES) showing the continuing damage debt-hawks cause America and our poorest citizens:
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By Greg Hitt and Sara Murray, WASHINGTON, 6/25/10: “Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.

“The collapse of the wide-ranging legislation means that a total of 1.3 million unemployed Americans will have lost their assistance by the end of this week. It will also leave a number of states with large budget holes they had expected to full with federal cash to help with Medicaid costs.”
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What is the evidence large federal deficits harm America? There is none. Yet, based solely on mystical faith and unsupported belief, the debt hawks have managed to punish millions of our poorest Americans.

The debt-hawks have heads of stone. They have hearts of stone, too.

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

No nation can tax itself into prosperity

–Japan: Debt/GDP = 218%. So?

An alternative to popular faith

In a previous post, I told you the Federal Debt/GDP ratio was an apples/oranges statistic, often quoted, but completely meaningless. (See: Debt/GDP). According to debt hawks and old-line economists, a high ratio portends inflation, recession and any number of other terrible economic outcomes. Of course, there is no evidence for this; it’s just popular faith unsupported by facts.

Read this article:

Associated Press; 6/22/10: TOKYO – “Japan’s economy, the world’s second largest, will expand at a faster pace in the current fiscal year than previously forecast as robust exports to Asia and improving corporate earnings are underpinning a broadening recovery.

“The Cabinet Office said Tuesday that Japan’s gross domestic product will rise 2.6 percent in the year to March 2011. “The upward projection was due to brisk growth in exports, especially to Asia. The forecast was also upbeat thanks to a recovery in capital spending and improving corporate earnings,” said Takashi Hanagaki, an official from the Cabinet Office.

“Earlier in the month, Japan upgraded its economic growth in the January-March quarter to an annualized pace of 5 percent from 4.9 percent in a preliminary report. But the encouraging figures, including Tuesday’s upward GDP revision, are tempered by persistent deflation and other negatives, including a lackluster labor market.

“Japan is also one of the most indebted countries in the world. Its public debt reached 218.6 percent of GDP last year, according to the International Monetary Fund.”

So here is Japan, with its 218% Debt/GDP ratio. It’s growth is anywhere between 2.6% and 5%. It’s large national debt has not caused the inflation debt hawks predict. On the contrary, Japan is fighting deflation. Further, the large national debt has not taken the place of capital spending as debt hawks also predict, but actually has facilitated capital spending as well as earnings.

Those are the facts, all of which will be disregarded by the debt hawks, the traditional economists and the media, who just know in their hearts that debt is bad, facts be damned. In fact, the AP article ended with this amazing sentence:

“Tackling the ballooning national debt is among most pressing tasks for Japan’s new Prime Minster Naoto Kan.”

Wrong. And that is why economics is a religion, not a science.

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

–Is Federal money better than other money??

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●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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In other posts on this blog, we have discussed how reductions in federal debt growth, as shown by the following graph, “Federal Government Debt-Domestic Nonfinancial Sectors,” immediately precede recessions. This comes as no surprise, since a growing economy requires a growing supply of money, and deficit spending is the federal government’s method for adding money to the economy.

Federal debt
FEDERAL GOVERNMENT DEBT- PERCENTAGE CHANGE FROM YEAR AGO

Clearly, federal debt/money growth is essential to keep us out of recessions. Yet, when we look at “Debt Outstanding Domestic Nonfinancial Sectors” which includes not only Federal debt, but also outstanding credit market debt of state and local governments, and private nonfinancial sectors we do not see the same pattern.

Total Nonfinancial Debt
TOTAL DOMESTIC NONFINANCIAL DEBT — PERCENTAGE CHANGE FROM YEAR AGO

In fact, when we subtract federal debt from total debt, leaving only state, local and private debt, we see the opposite pattern. Recessions more often seem to follow increases in state, local and private debt.


STATE, LOCAL AND PRIVATE DEBT, PERCENT CHANGE FROM YEAR AGO

Now in one sense, money is money. Your buying on your credit card creates debt/money, just as federal deficit spending creates debt/money. Presumably, both should have the same stimulative effect on the economy. They do, but not long term. Why?

Because, unlike the federal government, you, your business and local governments cannot create new money endlessly to service your debts. Your debts can pile up to the point where you must liquidate them by paying them off or by going bankrupt. When non-federal debts become too large, a growing number of people, states, cities and businesses must pull back and stop further borrowing, i.e. stop creating money, or even destroy money by paying off loans. When that happens, we have a recession.

(As an aside, this is one reason the early stimulus efforts had so little effect. People used the stimulus money to pay off loans, so while the federal deficit spending created money, the loan pay-downs destroyed it. Debt reduction destroys debt/money.)

During the recession, and for a short time after, we tend to cut back on our personal borrowing and liquidate debt/money. Then we begin to resume borrowing, more and more, until again, we hit our personal limits and cut back, causing yet another recession. The sole prevention of this cycle, which averages about 5 years in length, is to make sure that federal deficit spending grows sufficiently to offset periodic money destruction by the private sector.

In summary, federal deficit spending is good for the economy, always good, endlessly good (up to the point of inflation). Private and local government spending/borrowing also is good, but not endlessly. Unlike the federal government, the private and local-government sectors eventually reach a point where debt is unaffordable and unsustainable.

To prevent recessions, the government continuously must provide stimulus spending, then provide added stimulus spending to offset the periodic reduction of money creation by the private sector.

Rodger Malcolm Mitchell
Monetary Sovereignty


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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

— Let’s blame China

An alternative to popular faith

Here we go, again. The typical beggar-thy-neighbor approach to international trade.

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6/10/10: By David Lawder; WASHINGTON (Reuters) – Treasury Secretary Timothy Geithner said on Thursday that reform of China’s exchange rate is “critically important” to the U.S. and global economies and a more flexible yuan was in China’s interest.
[…]
In his testimony, Geithner said the Obama administration wanted China to change policies that disadvantage American companies and to provide a more level playing field for U.S. products and investments. He vowed the administration would “apply forcefully” all remedies available under U.S. law to curb China’s unfair trade practices, including anti-dumping and countervailing duty complaints.
[…]
“A stronger yuan would benefit China because it would boost the purchasing power of households and encourage firms to shift production for domestic demand, rather than for export,” he said. “[…]which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.”
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Think of it this way. When two nations each have the unlimited ability to create money, which nation benefits from a positive balance of trade? That is, which nation benefits when one sends more of its goods and services to the other?

In CHINA TRADE we saw that the nation exporting fewer resources (i.e. exporting more, easily created money), has the advantage. The Obama administration seems to believe international trade is a zero-sum game, where for every “winner” (net goods and services exporter) there is a “loser” (net goods and services importer). So in their minds, for the U.S. to be a winner, we must make sure there are enough nations that are losers – as I said, the beggar thy neighbor approach to international trade.

The technical truth is, the U.S. could we wealthy without exporting a single dollar’s worth of goods and services. Visualize that our exports were zero and the U.S. government were the sole “export” customer. Rather than exporting steel, sausage and services, the government would buy all this output. No, don’t get excited. I don’t suggest we stop exporting. I’m just trying to demonstrate a point.

Could the government afford it? Yes, the government has the unlimited ability to create the money to afford anything. Would our industries suffer? No, they would receive the same money as if they actually had exported. Would this increase the money supply to inflationary levels? No, the total money within the economy would be the same as if it had come in from other nations.

Yes, we’d have to solve the problem of what we do with all the goods and services we produce (Create new industries for this purpose??), but the U.S. literally could survive and prosper with no exports at all – as though it were the only nation on earth.

The Obama administration merely has set up China as a straw man, to take the blame for our economy’s failure to grow as fast as it should. But, the real blame should go to the debt hawk belief that federal deficit spending should be minimized. For years, our stimulus efforts have been too-little, too-late, and even today, while growth is painfully slow, and millions are out of work, there is more concern about so-called debt (i.e. money created) than about economic success.

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

No nation can tax itself into prosperity