–The loss of Monetary Sovereignty–How Congress puts us on a path to recession or depression Thursday, Jun 9 2011 

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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In August, 1971, the U.S. became Monetarily Sovereign by going off the gold standard. The purpose was to remove the artificial and uncontrollable limit on dollar creation imposed by gold mining and gold exchange.

The dollar now could be created without the supply limits of a physical substance. Thus, the federal government gave itself the unlimited ability to pay any bill of any size at any time, merely by crediting the bank accounts of its creditors. Unlike monetarily non-sovereign nations, the U.S. never could be forced into bankruptcy. We had total control over our finances.

Since that date, the Federal Debt Held by Private Investors has risen more that 3,400%. In the same period, inflation has risen comparatively less at 450%.

1

This may come as a surprise to those who link federal deficits with inflation, but there has been no relationship between federal deficits and inflation.

2

Deficits have not caused inflation. The main cause of inflation has been oil prices, (See: INFLATION). This, together with the Fed’s power to keep inflation at about 2%-3%, has kept the inflation forecasts, endlessly warned by the debt-hawks, (See: Unsustainable Debt) from coming to pass.

With our massive “deficit” spending, our Monetary Sovereignty has spared us the agonies felt by such monetarily non-sovereign nations as Portugal, Ireland, Italy, Greece and Spain (PIIGS), which are not on a gold standard, but rather are on a “euro standard.” These nations surrendered their unlimited ability to pay their bills, so they risk bankruptcy and depression.

Every depression in U.S. history, and most recessions, have been linked to reduced money growth (MONEY GROWTH. Because a growing economy requires a growing supply of money, these nations do not control the means to grow their economies, so are in serious danger. In fact, all monetarily non-sovereign governments – including American cities, counties and states – live on the edge of a razor blade.

Without additional money coming from outside their borders, these governments often find themselves unable to pay their bills. In the U.S., the source of this additional money can be the federal government, which has the unlimited ability to create our sovereign currency. The dollars created by the federal government are called (misleadingly) the “federal deficit.” Without federal deficits there would be no dollars in America.

Contrary to popular belief, the federal debt is not functionally the total of federal deficits. By law, the Treasury is required to create T-securities in the amount of federal deficits, and exchange these securities for dollars it previously created. The requirement is legal, not functional. The system is a relic of the gold standard days; it has no purpose for a Monetarily Sovereign nation, though it persists. The Treasury, just as easily, could create dollars directly, and eliminate T-security creation.

Because, there is no functional relationship between federal deficits and federal debt, the Treasury could create T-securities and trade them for dollars (aka “borrow”), without there being federal deficits. And the government could deficit spend, without borrowing. But via a bazaar, contrived and obsolete legal maze, the federal debt ceiling prevents the creation of dollars for economic growth.

Being Monetarily has allowed the American economy to build. Were we still on a gold standard, we would be unable to pay our bills. Unfortunately today, as this is written, the Unites States no longer is Monetarily Sovereign. We are monetarily non-sovereign, and in danger of recession or depression, just like the PIIGS. Our loss of Monetary Sovereignty comes from Congress’s refusal to increase the “debt,” which restricts the “deficit,” thereby restricting the money supply.

Because the so-called “deficit” merely is the government’s method for adding money to the economy, it more correctly should be called the “economic surplus.” Our economy is being ruined by a semantic misunderstanding. As money is the lifeblood of our economy, Congress’s actions amount to taking blood from an anemic.

A nation’s money supply can be expressed by this equation:

Money Supply = Trade Surplus + Federal Deficits + Loans (bank & non-bank)

That’s it. Couldn’t be simpler. If our Trade Surplus (i.e. imports minus exports) goes down, our money supply goes down. Currently, we are running a trade deficit, not a surplus, which removes money from our economy.

To counter the trade deficit — to grow our economy — federal deficit spending must go up. There are no alternatives. Germany has chosen the trade surplus route to growth, because it is monetarily non-sovereign, and cannot create its own money. So, it must have money coming in from outside its borders as payment for exports. This is a risky strategy, because it makes Germany subject to the whims of its customers. Just as large corporations can turn unprofitable and be unable to pay their bills, so can monetarily non-sovereign nations lose customers and be unable to pay their bills.

By contrast, our Monetarily Sovereign nation had total control, not only over our money supply, but over the value of our money supply (inflation) via interest rate control. We could live with a trade deficit because our financial control put us in a risk-free position – until America’s leaders voluntarily surrendered our Monetary Sovereignty.

By enforcing a “debt ceiling,” Congress and the President undo the one step that made possible 40 years of economic growth: The end of the gold standard. We now are subject to a de facto gold standard – call it a “politicians’ standard” – and there will be hell to pay. Unless our leaders miraculously come to their senses, our economy will decline and we will enter a period of recession, then depression, such as we never have seen, not even during the 1930’s.

Thus is our penalty for their ignorance.

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

–Why Pakistan and Afghanistan, but not Mexico? Wednesday, Jun 8 2011 

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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This is not my area of expertise, but you may find it thought-provoking.

First the setup question: Why have U.S. soldiers been in Afghanistan and Pakistan? Presumably, the answer is to fight the Taliban and al Qaeda, who over the years, have killed many Americans and who represent a serious, ongoing threat to the American way of life. That seems like a reasonable use of an army, even when the action occurs in a putative ally.

Now the real question: Which has caused more American deaths and hardship, and been a bigger threat to the American way of life: The Talaban/alQaeda combination or the drug cartels of Mexico? The question came to mind when I saw a Washington Post article which said:

Today’s competitive crime mafias in Mexico are no longer satisfied with bazookas, rocket-propelled grenades or land mines. The Mexican military has discovered that gangsters south of Texas are building armored assault vehicles, with gun turrets, inch-thick armor plates, firing ports and bulletproof glass.
[ . . . ]
Last year authorities found an elaborate tunnel stretching more than 2,200 feet, complete with train tracks and ventilation, that was used to move marijuana between a house in the Mexican city of Tijuana and a warehouse in Otay Mesa, Calif.

On the high seas, maritime forces have intercepted dozens of “narco-submarines” hauling multi-ton loads of cocaine north. The semi-submersibles travel very low in the water to avoid detection.

With growing frequency, U.S. guards have spotted ultralight aircraft barnstorming over the border fences to drop 200-pound loads of pot in fields for waiting pickup trucks that flash their high beams or create a makeshift drop zone out of light sticks. According to U.S. officials, there have been more than 300 ultralight incursions into the United States in the past 18 months.

I say the Mexican drug cartels have caused far more damage to America, and are far more likely to continue doing damage well into the future. If true, why do we devote so much military effort to Afghanistan and Pakistan, all of whom are far across the ocean, while devoting virtually no military effort to Mexico, right on our border.

As in Afghanistan and Pakistan, the Mexican government has shown very little inclination or ability to rid itself of America’s enemies, the drug cartels. Isn’t there even more reason to make the same deal with Mexico as we have with Afghanistan, and send in our bombers, our Predators and our troops?

According to the Journal of American Medical Association, in 2000, 17,000 deaths occurred as a result of illegal drug abuse. But death is only a small part of the story. Consider individual lives ruined, entire families ruined, entire neighborhoods ruined. The damage done by the Pakistan and Afghanistan wars, while horrendous, pales in comparison to the damage done by illegal drugs from Mexico.

What is different about the Mexican “disease” that makes it immune from a “vaccination” by the U.S.army? Mexico, is within easy range of our army, and stabilizing Mexico not only would reduce illegal drugs, but illegal immigration. Further, Mexico could become a much stronger trade partner, if its people and businesses were not subjugated by crime lords.

The current situation makes internal reform almost impossible. The government, the army and the drug cartels all work together. There is no institution with the power to stop them. Mexico will continue to decline until it is one vast illegal drug factory. There is no countervailing effort. Talk about WMDs, what is worse than illegal, habit-forming drugs?

So my question is: Why Afghanistan and Pakistan, but not Mexico? Don’t we have our priorities confused?

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

–How the poor get screwed. Why deficit reduction increases the gap between rich and poor. Monday, Jun 6 2011 

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Every politician claims to love the poor, the downtrodden, the unemployed. Yet, the same politicians vote to cut the deficit, hurting those poor he/she loves so much. Sadly, the poor buy into it.

Both parties claim that reducing the federal deficit will reduce unemployment and benefit the working class and the poor. Exactly how a reduction in net federal dollars flowing into the economy will stimulate employment and benefit the working class, never is explained, because there is no explanation. It is a bogus argument.

To reduce the deficit requires taxes to be increased or federal spending to be reduced. The Democrats want to reduce the deficit by increasing taxes on the “wealthy.” The Tea/Republicans want to cut the deficit through federal spending reductions. Functionally, there is no difference between a tax increase and a spending reduction; both reduce the amount of money being added to the economy.

Traditionally, the Republicans have favored cutting taxes, an act that benefits economic growth. Democrats traditionally have wanted to spend more, which also benefits economic growth. Unfortunately, the Tea Party, a perverted outgrowth of President Reagan’s memorable statement, “. . . government is the problem,” has taken over the Republican Party, who now will do and say anything to get into power.

This has dragged in the Democrats, who will do and say anything to stay in power, so both parties now are preaching an anti growth line, being led by a group of economic know-nothings. Extreme views often gain favor during difficult times, when people are desperate for a solution, and in this case, the extreme views are supported by the wealthy. Note how such luminaries as Bill Gates and Warren Buffet have made statements actually supporting a tax increase! Why do rich people want their taxes raised? Not out of generosity. Read on.

Because a growing economy requires a growing supply of money, a tax increase and/or a spending reduction reduce economic growth. And no matter how it’s done, deficit reduction hurts the lower incomes most. Consider a tax increase on the wealthiest. What does it accomplish? It reduces the amount of money in the economy. A Monetarily Sovereign nation does not spend tax money. It has no need to. The spending itself creates money. So what happens to tax money? It leaves the economy and is destroyed. It simply ceases to exist.

History shows that every depression and most recessions not only have been caused by reductions in the money supply, but even by reductions in money supply growth. See: SUMMARY. Who suffers most during recessions and depressions – the wealthiest or the poorest? Right, the poorest.

Although tax increases will force the wealthiest to pay more taxes, that will not affect their life styles. They’ll find more tax “loopholes.” They’ll get by on two cars rather than three (Dealerships may fire some working salespeople), and the remodeling of the 2nd home may be delayed a year (Some tradespeople will lose their jobs). But life will go on for the wealthy. Not so for the less wealthy who, during a recession, may become unemployed, lose their housing, spend less and cancel plans for children’s college.

According to the IRS, the bottom 50 percent of Americans earned less than $32,879 and paid only 2.9% percent of the nation’s income taxes, down from 3 percent a year earlier. So to reduce the so-called “deficit,” shall we increase taxes on these folks?

Where the lowest paid really get hit is with FICA. In 2010, income taxes totaled $935 billion, and FICA totaled $875 billion – pretty close. But while all income is subject to income tax, only salaries below $100K are subject to FICA – an enormous saving for the wealthy. And, not only does FICA steal 7.65% from every salaried worker, but it steals another 7.65% from his/her boss. Think of it as 15.3% that could have gone to the salaried employee, but instead goes to the government, where it is destroyed. FICA, not income tax, is the big tax burden on working people.

In short, all taxes and tax increases hurt everyone in the economy — they are recessionary — but they hurt the poor more than the wealthy, so by comparison, the wealthy become wealthier. Tax increases make the wealth gap grow.

Now consider a federal spending reduction. Medicare and Social Security are the biggest targets, and who relies most on these federal programs – the 1% of Americans defined as “rich, who earned an adjusted gross income of $410,096 or more and accounted for 22.8% of all wages, while paying 40.4% of total reported income taxes? Or are the 99% defined as “not rich” more likely to need Social Security and Medicare?

Right. If Medicare and Social Security are cut, the rich will hardly notice. Warren Buffet probably doesn’t even know whether he receives Medicare and Social Security benefits. Financially, it is meaningless to him. Cutting social programs hurts the poor more than the rich, increasing the gap between rich and poor.

Or, we could cut military spending. This would cut profits and jobs from all those industries that sell to the U.S. military, and it would cut the number of salaried service people. Cutting military programs hurts the poor more than the rich, increasing the gap between rich and poor.

No matter where you look in the federal budget, spending cuts would hurt the bottom 99% far more than the top 1%.

In summary, federal tax increases and federal spending cuts (i.e. deficit reduction) cause recessions, and all three hurt the middle class and poor far more than they hurt the rich. Deficit reduction will increase the gap between the rich and the poor.

And the wealthy have brainwashed the non-wealthy into thinking this is a good thing.

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

Erskine Bowles and Alan Simpson reveal why the nation is in trouble: Them. Sunday, Jun 5 2011 

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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President Obama created a deficit commission headed by Erskine Bowles, chief of staff for President Clinton, and Alan Simpson, former Senator from Wyoming. The two of them wrote a fact-free, guest column for the 5/2/11 Fortune Magazine.

Here is the first paragraph of their article:

Our nation faces the most predictable economic crisis in its history. Spending is rising rapidly, and revenues are failing to keep pace. As a result the federal government is forced to borrow huge sums each year to make up the difference.

Totally, 100% wrong. Since 1971, the end of the gold standard, the U.S. federal government has had the unlimited ability to pay its bills without borrowing, even without taxing. There is zero relationship between federal deficits and the federal government’s ability to spend.

The situation Bowles and Simpson describe is called monetary non-sovereignty. But the U.S. is Monetarily Sovereign, an entirely different economic situation. It’s as though Bowles and Simpson were hired to analyze a football game and came back with recommendations based on tennis rules.

Creating T-securities from thin air, then exchanging them for dollars previously created from thin air(aka “borrowing”), no long is necessary. The fact that the two people heading Obama’s deficit commission don’t understand this fundamental truth of economics, is shocking.

Bowles and Simpson are no more ignorant than the politicians, media writers and old-line economists. What’s shocking is the fact that they head a commission entrusted with analyzing the situation and making recommendations based on their analyses. Instead, they parrot the popular and obsolete wisdom of the day.

Continuing the paragraph:

If not addressed, burgeoning deficits will eventually lead to a fiscal crisis, at which point the world’s financial markets will force decisions upon us.

There’s that word “eventually” again, the word all debt-terrorists use, because they have no facts. “Eventually” is the cousin to “unsustainable” and “ticking time bomb,” previous debt-terrorist favorites. Yes, “eventually” the U.S. will lose the ability to pay its bills, if Congress, on the advice of Bowles and Simpson, refuses to raise the debt ceiling. Meanwhile, according to current law, the U.S. can pay any bill of any size and time — without borrowing.

Later, in another paragraph, Bowles and Simpson say:

Recently Paul Ryan, the Republican chairman of the House Budget Committee, put forward a serious, honest plan for addressing our nations fiscal challenges. But while it makes a constructive contribution to the debate, it fall short of the balanced, comprehensive approach necessary to achieve bipartisan support.

Huh? It’s “serious,” “honest” and “constructive,” but it’s not “balanced” or “comprehensive”? Paul Ryan’s plan is the worst thing that possibly could happen to America, especially to America’s lower paid, 90% majority, the people who depend on Medicare, Social Security and jobs, all of which Ryan’s plan would erode. Bowles and Simpson, rather than actually looking at facts, have given us the typical, wrongheaded gobbledegook we can expect from political appointees who have no idea what they are talking about.

The article ends with:

(The) prospect for bipartisan compromise now offers us the best hope for genuine progress that benefits both sides, and important, benefits the country.

Sure, they want compromise so long as the compromise begins with the diametrically wrong assumption that our Monetarily Sovereign nation somehow has gone back to pre-1971, on the gold standard, to become monetarily non-sovereign.

If you’re wondering how the wealthiest nation in the world could find itself in ongoing financial difficulties, you only need listen to Bowles and Simpson, the two men given the assignment to investigate solutions, but instead came back with exactly what their boss told them.

Bowles and Simpson — may their names live on in disgrace, as classic examples of political hacks who know nothing about the job they were given, so rather than helping, they do damage. (“Doctor, your patient died needlessly. You did a Bowles and Simpson operation.”)

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


==========================================================================================================================================
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

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