Enough already, with the Debt/GDP ratio Monday, May 21 2018 

It takes only two things to keep people in chains:
The ignorance of the oppressed
And the treachery of their leaders

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Some economists, perhaps feeling pangs of inferiority about economics as a science, try to make it seem more “scientific,” and for them, that requires mathematics.

The belief is: Include a bunch of formulas, then claim these formulas prove economics is a “real science,” like astronomy and physics.

That is why economics papers usually include so much math. It’s part of the desperate hope this pseudo-specificity will justify the WAGs (Wild-Ass Guesses) that too many economics papers include.

That desperate need for mathematical justification is one reason why the Debt/Gross Domestic Product ratio was created — that plus the efforts by the rich to “prove” that social programs are unaffordable and “unsustainable” (a favorite word for debt guerillas).

The Federal Debt/GDP ratio is absolutely meaningless, a useless, designed-to-be-misleading number that has been foisted on an innocent public.

The so-called “Federal Debt” isn’t even “debt” in the usual sense.  It is the word describing the current total of open deposits — similar to bank savings deposits — into Treasury security accounts, made for the past 30 years.

By contrast, GDP is the total of Spending and Net Exports this year. Putting these two, unrelated measures into one fraction yields a classic apples/oranges ratio, measuring nothing.

It’s akin to creating a ratio of Chicago Cubs hits in yesterdays game vs. the number of games the Cubs won last year. Meaningless.

If, instead of misnaming it “debt,” we called it “deposits in T-security accounts,” the entire misunderstanding might disappear.

Here are a few things the Debt/GDP ratio does not indicate:

    1. It does not indicate the federal government’s ability to pay its obligations

      Image result for bernanke and greenspan

      Alan Greenspan“A government cannot become insolvent with respect to obligations in its own currency.”
      Ben Bernanke“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
      St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.”

    2. It does not indicate the likelihood of inflation

      There is no relationship between Debt/GDP growth (blue line) and inflation (red line).

    3. It does not indicate the health of the economy

      There is no relationship between Debt/GDP growth (blue line) and GDP growth (red line).

    Those are the facts. They are easily obtainable. Yet here is an example of the disinformation that continually has been spread, to brainwash the public:

Forget Debt As A Percent Of GDP, It’s Really Much Worse
Jeffrey Dorfman, Forbes Magazine

When central bankers, macroeconomists, and politicians talk about the national debt, they often express it as a percent of gross domestic product (GDP) which is a measure of the total value of all goods produced in a country each year.

The idea is to compare how much a country owes to how much it earns (since GDP can also be thought of as national income). The problem with this idea is that it is wrong.

The government does not have access to all the national income, only the share it collects in taxes.

The 1st paragraph is correct. The 2nd paragraph is misleading in that our Monetarily Sovereign government’s access to dollars is not taxes but rather its unlimited ability to create dollars (See the statements by Greenspan, Bernanke, and the Federal Reserve, above).

Even if all federal tax collections were zero, the federal government could not unintentionally run short of its own sovereign currency, the U.S. dollar.

Then the article goes completely off the rails:

Looked at properly, the debt problem is much worse.

I collected national debt, GDP, and tax revenue data for thirty-four OECD countries (roughly, the developed countries worldwide) for 2010.

The data are a bit old, but that is actually the last year available for government tax revenue numbers. The debt figures are for central government debt held by the public (so the debt we owe to the Social Security Trust Fund does not count) but the central government tax revenue includes any social security taxes.

Some people hate the notion of comparing a country’s financial situation to a family, but I think it is useful in many cases with this being one of them.

For a family, debt that exceeds three times your annual earnings is starting to become quite worrisome. To picture this, just take your home mortgage plus any auto, student loan, or credit card debt, then divide by how much you earn.

First, he properly reveals that “some people” (i.e. people who understand Monetary Sovereignty) hate improperly comparing federal finance to personal finances.

Then he proceeded to make that improper comparison. What he failed to recognize is:

A family can run short of dollars. A state or local government can run short of dollars.  A business can run short of dollars. You and I can run short of dollars. We all are monetarily non-sovereign.

The federal government, being Monetarily Sovereign, cannot unintentionally run short of dollars.

Economists and central bankers know this is not the same as the family debt to income concept, which is why they warn of danger at the level of 100, 90, or even 70 percent depending on which economist you talk to or exactly how you define the total amount of debt.

Yes, knowledgeable economists and central bankers (like Bernanke and Greenspan, above) know federal finances are not the same as family finances, but ignorant economists warn of “danger at 100, 90, or even 70 per cent.”

The article was written four years ago, when the ignorant economists were, in fact, delivering that warning to an innocent public. Today, the ratio is about 106% and we are entering our 9th year of economic growth, with low inflation.

Sadly, that fact has not penetrated the skulls of the debt “Henny Pennys,” who have been screaming, “The sky is falling” since 1940.

The reason for the different standard is that the government cannot claim all your income as taxes or we would all quit working (or emigrate).

No, the reason for the different standard is that Monetary Sovereignty is different from monetary non-sovereignty.

The article continues spreading disinformation:

A better comparison is to examine each country’s debt to government tax revenue, since that is the government’s income.

This also offers a better comparison because different countries have very different levels of taxation.

A country with high taxes can afford more debt than a low tax country. Debt to GDP ignores this difference. Comparing debt to tax revenue reveals a much truer picture of the burden of each country’s debt on its government’s finances.

All of the above is completely false. The federal government neither needs nor uses federal tax dollars. It creates dollars, ad hoc, each time it pays an obligation.

Tax dollars cease to be part of any money supply measure, the instant they are received. In short, tax dollars are destroyed upon receipt.

The federal government collects taxes, not to provide spending funds, but rather to exert control over the economy and over the voting public.

Federal “debt” (deposits) are not paid back with tax dollars, but rather with dollars that already exist in T-security accounts.

The article’s nonsense continues:

When I compute those figures, Japan is still #1, with a debt as a percentage of tax revenue of about 900 percent and Greece is still in second place at about 475 percent.

The big change is the U.S. jumps up to third place, with a debt to income measure of 408 percent. If the U.S. were a family, it would be deep into the financial danger zone.

Yes, if the U.S. were a family . . . but that is the whole point. The U.S. is not a family. It is the creator of the U.S. dollar by, as Bernanke said, the electronic equivalent of a printing press.

If a family created dollars with its own printing press, it too could pay all its bills, and it would have no need for, nor use of, income.

To add a bit more perspective, the countries in fourth, fifth, and sixth place are Iceland, Portugal, and Italy, all between 300 and 310 percent. In other words, these three are starting to see a flashing yellow warning light, but only three developed countries in the world are in the red zone for national debt to income.

The U.S. is one of those three.

You can see a list of nations according to their tax revenue to GDP ratio here.

Near the bottom of the list are nations with what the author considers to be the “best” ratio, among which are Lybia, Burma, Nigeria, Iran, Haiti, Panama, and similar. Consider what you know about the strength of those economies.

Take a moment to glance at the list, and you’ll see that there is zero relationship between the ratio and any measure of economic success, inflation or any other success criterion.

In short, just like the Debt/GDP ratio, the Tax Revenue/GDP ratio is completely useless, partly because it does not differentiate between Monetarily Sovereign vs. monetarily non-sovereign nations. (Nor does it differentiate between degrees of socialism, which would increase the ratio.)

This does not factor the several trillion dollars owed to Social Security, yet it includes the Social Security taxes collected. If Social Security taxes are not counted, the U.S.’s debt to income ratio rises to 688 percent (still in third place).

This tells you something about the likelihood of increasing Social Security taxes in conjunction with declining Social Security benefits.

Unfortunately, it is true that Social Security taxes will be increased, though not because tax dollars are needed or used.

Rather, FICA, the most regressive tax in America, will be increased because the rich, who control the politicians, want to foster the belief that the federal government “can’t afford” to pay Social Security benefits.

Finally, we come to the misleading summary of a misleading article:

Without quick and significant action on the federal budget, as soon as interest rates begin to rise toward normal the burden of the national debt on the federal budget will become heavy indeed. Something will have to give.

Somebody needs to drag the President and Congress to a credit counselor quick to begin repairs on the government finances. Otherwise, one day sooner than we think, the creditors will be knocking on the door.

What does that goofy phrase, “the creditors will be knocking on the door” mean? Does it mean creditors will want to be paid?

I have news for the author: Creditors always want to be paid, and the U.S. federal government never has failed to pay a creditor. And it never will fail.

The federal government “prints” all the dollars it needs, just as Bernanke, Greenspan and the Federal Reserve said.

I should mention that the article, and its dire warnings, was published back in 2014, and today, while our economy continues to grow, I had hoped the author has learned from reality, and no longer claims the sky is falling.

But, oops. He’s still at it. Here’s an article he wrote just last December, 2017: 10 Things You Need To Know About The Debt Ceiling And Potential Government Shutdown.

In this article he says,

“Spending can be cut to balance the budget, but not without cutting entitlements.”

And there you have the true purpose of the deception, to cut social programs and to widen the Gap between the rich and the rest.

Of the people who spread disinformation in the face of contrary fact, some do it out of ignorance and some are paid to do it.

I do not know which camp Mr. Jeffrey Dorfman lives in.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

Interest rates going up: Should you be concerned? Tuesday, Mar 27 2018 

It takes only two things to keep people in chains:
.

The ignorance of the oppressed
and the treachery of their leaders.

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Interest rates going up: Should you be concerned?

The answer: Well . . .  maybe and maybe not. Here are excerpts from an article by the anti-debt Committee for a Responsible Federal Budget (CRFB):

Rising Rates Could Further Balloon Interest Spending
Mar 21, 2018

The Federal Open Market Committee (decided) to raise the federal funds rate by 0.25 percentage points to 1.5-1.75 percent.

The federal government (is projected) to spend $6.8 trillion on interest costs over the next decade. If interest rates end up just 1 percentage point higher than projected, interest costs would increase by a further $2 trillion. If interest rates return to their pre-recession levels, costs could rise by $3.4 trillion.

Let us rephrase as follows:

The federal government (is projected) to pump $6.8 trillion interest dollars into the economy over the next decade.

Should a $6.8 trillion stimulus — which is similar in effect to a $6.8 trillion tax cut — be a cause for concern?

GDP growth parallels money supply growth

A large economy contains more money than does a smaller economy. The U.S. has a larger money supply than does California, which in turn, has a larger money supply than does Los Angeles.

This overly-simple example shows that to grow from smaller to larger, an economy usually needs an increased money supply. The projected $6.8 trillion in federal interest payments will produce an increased money supply and economic growth.

Federal deficit spending, which increases the money supply, is the method by which the federal government cures recessions:

Two views of deficit spending. The blue line is a direct fiscal year measure of deficit spending. The red line is the calendar year issuance of T-securities, the legal requirement for matching deficit spending. The vertical bars are recessions.

The above graph shows that federal deficit spending stimulates the economy to cure recessions. In the late 1990s, the federal government ran a surplus, which caused a recession. 

That being the proven case, one wonders why anyone would be anti-deficit.

Projected interest rates are notably below historic levels.

Most experts believe we will remain below these levels due to slower productivity growth, greater income inequality, higher demand for safe assets, higher foreign capital inflows, and generally observed reductions in global interest rates, but low interest rates are by no means a given.

If “reductions in global interest rates” are paired with “slower productivity growth” and “greater income inequality,” why would anyone favor low interest rates?

Under CBO’s interest rate assumptions, we recently estimated interest costs will quadruple in a decade or so. We projected interest will rise from $263 billion in 2017 to $965 billion in 2028 under current law and to $1.05 trillion in 2028 assuming various expiring policies are extended. In either of these scenarios interest costs (in percent of GDP) would represent a historic record.

To paraphrase, the CBO estimates that by 2028, our Monetarily Sovereign government will pump $965 billion – $1.08 trillion stimulus dollars annually into our economy.

The CBO implies that this must, in some unstated way, be bad for you. The CBO never says why, instead implying that large federal debt is similar to large personal debt.

It isn’t.

(We) project the debt-to-GDP ratio will rise from 77 percent of GDP today 101 percent of GDP by 2028. The historical record level of debt held by the public as a percent of GDP for the United States is 106 percent, set just after World War II.

We assume the warning about the debt-to-GDP ratio is supposed to frighten you, for some reason. But aside from the reason never being stated, there are two problems with the implied warning:

  1. The so-called federal “debt” isn’t a real debt. It is deposits onto into T-security accounts, that really are something like interest-paying safe deposit boxes.  The dollars go in, interest money is added, and at maturity, the dollars go back. Our federal government, being Monetarily Sovereign, uses those dollars.
  2. Even if the so-called “debt” were real debt that the government actually used (as with state and local government debt), the federal government, being Monetarily Sovereign, could pay it all off, simply by creating new dollars.

Here is a graph comparing GDP growth with the Debt/GDP ratio. It shows that changes in the ratio — up or down — do not affect our economic growth.

The rising Federal Debt/GDP ratio (red) you repeatedly are warned about, has no effect on GDP growth (blue). 

This is one of the reasons we say that the Debt/GDP ratio is meaningless. The ratio compares the historical total of deposits into T-security accounts that still exist, with the value of all goods and services produced in one year. It would be difficult to find two more dissimilar, unrelated measures in all of economics.

The ratio has nothing to do with the federal government’s solvency or ability to spend. The ratio has nothing to do with any need for future tax collections. The ratio has nothing to do with our economic growth or lack thereof.

In astrology, the motions of the planets are compared with future personal events.

 Debt/GDP ratio is economic astrology. It measures nothing.

Lawmakers need to reverse course to reduce the interest burden and the exposure to eventual higher interest rates.

“Interest burden”? Paying interest is no burden on our Monetarily Sovereign federal government. Even without collecting a penny in taxes, our federal government is capable of paying infinite amounts of interest.

Taxpayers do not fund the federal government’s interest payments or any other federal spending. The U.S. government created the very first dollars from thin air. It still creates dollars from thin air, merely by pressing computer keys. It cannot run short of its own sovereign currency.

So do not fret. Despite all the “Henny Penny” warnings, a high deficit, high debt, or high Debt/GDP ratio will not doom your children and grandchildren to higher taxes.

There is some debate about how interest rate increases affect the private sector. Most interest neither adds nor subtracts dollars from the total world economy. Interest just circulates, with some individuals and businesses paying more and some receiving more.

With higher interest rates, the public will pay more for loans and for products/services provided by borrowers. Meanwhile, the public will receive more from bonds, CDs, and interest-paying bank accounts.

So depending on your position in the economy, higher interest rates can help you or hurt you.

But remember, there is that one net benefit from higher interest: The federal government adds more stimulus dollars to the economy when it pays more interest.

When interest rates (red) grew from 1955-1980, GDP (blue) trended upward. When interest rates declined from the 1980s to 2018, GDP trended downward.

In Summary:

    1. Rising interest rates benefit the nation as a whole, because they force the federal government to add more stimulus dollars to the economy. Higher rates are associated with economic growth.Short term, the stock market reacts negatively to interest rate increases, because traders anticipate it will, and act accordingly. Within a few days, the market recovers, which proves the point.
    2. That said, borrowers are punished and lenders benefit from rising interest rates. If you plan to take out a new mortgage or to buy a car in the future, you will pay more interest. If you plan to put dollars into a bank savings account, a money market, a Treasury Security or a bank CD, you will benefit from an interest rate increase.
    3. To pay a creditor, the federal government sends instructions to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. When the bank does as instructed, dollars are added to the money supply.From a bookkeeping standpoint, an account at the Federal Reserve Bank called Treasury’s General Account simultaneously is debited. Though this account is not part of the nation’s money supply, an obsolete rule disallows it from having an overdraft.
      So, the federal government, which is sovereign over the dollar, is forced to issue T-securities.These securities do not add to the federal government’s money supply (the government has no money supply) or provide the federal government with spending money, but rather they obey the rule by providing a bookkeeping credit to the Treasury’s General Account.
      If the government merely eliminated the rule, the Treasury could continue paying its bills, but there would be no requirement to issue T-securities, and there would be no worries about the so-called federal “debt.”
    4. The federal debt/GDP ratio does not reflect the federal government’s ability to pay its bills. It does not reflect the health of the economy. It does not reflect future tax increases or decreases. It is a meaningless ratio comprised of a multi-year measure (total T-securities) divided by a 1-year measure (GDP).
    5. The unfounded concerns about the federal deficit and debt are promulgated by the very rich, who based on Gap Psychology, wish to convince the rest of America that federal social benefits (Social Security, Medicare, Medicaid, aids to the poor, aids to education, etc.) are unaffordable.

    Rodger Malcolm Mitchell
    Monetary Sovereignty
    Twitter: @rodgermitchell; Search #monetarysovereignty
    Facebook: Rodger Malcolm Mitchell

    MONETARY SOVEREIGNTY

    ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

    The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

    Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

    Implementation of The Ten Steps To Prosperity can narrow the Gaps:

    Ten Steps To Prosperity:
    1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
    Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
    *FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
    *The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
    2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
    This article addresses the questions:
    *Does the economy benefit when the rich can afford better health care than can the rest of Americans?
    *Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
    *How much would it cost taxpayers?
    *Who opposes it?”
    3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
    This article is the fifth in a series about direct financial assistance to Americans:

    Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
    MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
    Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
    “You can’t fire me. I’m on JG” Saturday, Jun 2 2012

    Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
    4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
    Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
    Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
    An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
    5. SALARY FOR ATTENDING SCHOOL
    Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
    If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
    6. ELIMINATE FEDERAL TAXES ON BUSINESS
    Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
    7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
    Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
    8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
    There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
    But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
    9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
    Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
    Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
    10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
    Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

    The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

    MONETARY SOVEREIGNTY

–Will Obama’s latest mortgage relief plan be a hit or a miss? Tuesday, Sep 6 2011 

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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Stephen Gandel wrote this piece for Time:

Is the Government Going to Lower Everyone’s Mortgage Payment?
Tuesday, September 6, 2011 at 3:02 pm

It’s been about two weeks since the Obama administration floated the idea of a massive mortgage refinance, and there seems to be little consensus on whether the plan would provide a boost to either the economy or the housing market.

The plan is to allow the millions of homeowners who have government owned mortgages to refinance those home loans at today’s lower interest rates. Lower mortgage payments should make it easier for struggling homeowners to make their payments and stay out of foreclosure. What’s more, a massive refi could also boost the economy. The idea is that if people had to spend less on their mortgage they would spend that money elsewhere, buying cars or shoes or whatever.
[…]
Still, a number of economists are giving the plan a thumbs down. The most prominent detractor is Ed Glaeser, an economics professor at Harvard University and a housing market expert. Glaeser says the plan is a poor idea for stimulus because the benefits for homeowners would be spread over 30-years, yet the cost to mortgage investors and banks and taxpayers, which own the loans at what are considered high rates today, would be immediate. That is the opposite of how good stimulus is supposed to work.

As always, the Harvard professors do not understand Monetary Sovereignty. They do not understand that any money spent by the federal government (Is there any in this plan?) does not cost taxpayers one cent. In a Monetarily Sovereign government, federal taxes do not pay for federal spending.

But he’s right about it being a poor plan.

What’s more, Glaeser says lower mortgage rates are unlikely to boost the housing market or even stem foreclosures. Bank analyst Richard Bove says the plan would be a dud because it really doesn’t boost the money in the economy, just transfers it from banks to borrowers.

Bove is right on target. But of course, the government’s idea (really, the Tea/Republican idea — give credit where credit is due) is for the federal government to spend nothing, but magically stimulate the economy. That’s something like filling the water bottle without adding water.

And normally, I would agree with Bove. Normally, if borrowers spend money in the Gap there really shouldn’t be any difference for the economy than if they were sending money to the bank or investors. In fact, the later could be better for the economy because banks or investors could put that money back in to the economy in the form of new loans or investments. But that’s not happening right now. Lending has been on a year and a half slide. And investors are running toward Treasuries, and so far those plunging bond yields have done little for the economy. So right now, putting money in consumer’s hands instead of the banks may make sense.

The problem is the ridiculously low interest rates That is where I disagree with MMT, which says 0% is the “natural rate of interest” (whatever that means.) Historical data shows that contrary to popular wisdom, high rates stimulate, because they force the government to pump interest dollars into the economy.

Lowering the number of foreclosures will boost the housing market. There may be as many as 15 million borrowers in the U.S. who owe more than their house is worth. Lower their payments and you are likely to lower the number of foreclosures. Fewer foreclosures should lead to rising housing prices. And rising housing prices should be better for the economy.

Agreed.

. . . the current recovery is unusual not just for its slow pace of job growth, but also because of the lack of a housing recovery. In the past, housing recoveries have always led more general economic recoveries. That’s not happening this time, and it may be the reason the recovery has been so disappointing.

Yes, that’s one reason, but not the main reason, which is the timidity of the stimulus programs. “Too little, too late” has been the chief characteristic of all federal efforts.

All in all, this plan is typical of Washington politicians. They think our federal government –our Monetarily Sovereign federal government, with the unlimited ability to pay any bill — is “broke” (Boehner’s word), so must cut spending. They want the banks — many of which have gone bankrupt, and none of which are Monetarily Sovereign — to cut their income. It’s beyond ignorant.

And isn’t this eerily similar to Obama’s Mortgage Modification fiasco of two years ago – the one that none of the banks wanted – so they stalled, and stalled and stalled, until perhaps one out of a thousand applicants received a reduced mortgage rate, but all spend countless hours, submitting and re-submitting endless forms and waiting on telephone hold?

Message to Obama: Banks are businesses. Like all businesses, they will do what they feel is profitable. Duh.

How about this, instead: Reduce everyone’s mortgages by the exact amount Obama wants, but have the federal government give the banks that amount, plus a small bonus. So the banks profit immediately and profit again when foreclosures go down, and the economy and consumers gain spending dollars. And no, the taxpayer pays nothing (the federal government does not use federal taxes for spending).

Now there would be a plan that would help the economy (though not as much or as quickly as eliminating the FICA tax. But that’s another story).

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

–Proof that money and brains don’t always go together: Steve Forbes Tuesday, Sep 6 2011 

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

From Newsmax.com
Proof that money and brains don’t necessarily go together (or why I never buy Forbes Magazine):

Steve Forbes to Newsmax: Obama, Bernanke Must Go
Wednesday, 31 Aug 2011 06:03 PM
By Jim Meyers and Kathleen Walter

Former presidential candidate and Forbes magazine editor Steve Forbes tells Newsmax that President Obama’s planned economic reforms are “the definition of insanity” — repeating failed policies in the hopes that somehow they will become successful.

In a wide-ranging exclusive interview, Forbes also declares that Federal Reserve Chairman Ben Bernanke should have resigned a long time ago, says Obama will be a one-term president, and looks for significant and positive reforms in Washington after the 2012 elections.

He also predicts the United States will make an “astonishing” move and return to a gold standard in the next five years, and says he’s “very impressed” with Gov. Rick Perry and is leaning toward supporting him for the GOP presidential nomination.

A Perry / gold-standard supporter. What more could I say?

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

MONETARY SOVEREIGNTY

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