Ten answers that are contrary to popular wisdom Monday, Aug 27 2018 

We could have begun each answer with the words, “Contrary to popular wisdom . . .” for much of economics differs from what you, the public, are being told.Image result for popular wisdom

The federal government uniquely is Monetarily Sovereign. It invented and rules all the laws that create and regulate its sovereign currency, the U.S. dollar.

Federal financing is substantially different from your personal financing, your business’s financing, and your state’s, county’s, and your city’s financing.

If ever you have attempted to explain (or understand) Monetary Sovereignty, you probably have encountered these 10 questions:

1. “Is federal debt unsustainable? (I.e., can we continue running deficits forever. If you and I need to live within our means, must the federal government live within its means?)

A Monetarily Sovereign government never can run short of its own sovereign currency, so it has no “means” to live within.

Having the unlimited ability to create new dollars, the federal government can pay any obligation denominated in dollars, no matter how large. The federal government doesn’t even need to levy taxes.

The very act of paying its bills is the method by which the government creates new dollars. To pay a creditor, the federal government sends instructions (in the form of a check or a wire) to the creditor’s bank, instructing the creditor to increase the balance in the creditor’s checking account.

The moment the bank does as instructed, brand new dollars are created and added to the money supply called “M1.” No tax dollars are involved.

There are two ways dollars are created and two ways they are destroyed:

Dollars Are Created By:
A. Federal bill paying
B. All forms of dollar lending

Dollars Are Destroyed By:
A. Federal Taxing
B. Repayment of loans

2. “If the federal government doesn’t need tax dollars, why does the federal government levy taxes?”

There are two primary reasons:Image result for gap between the rich and the poor

A. To control the economy.  The government taxes things it wishes to rein in, and cuts taxes on things it wishes to encourage.

B. To fool the public. The very rich, who run the government, want the 99% to believe federal spending must be limited. This discourages the populace from asking for benefits and thereby widens the gap between the rich and the rest.

(The Gap is what makes the rich rich. Without the Gap, no one would be rich; we all would be the same. The wider the Gap, the richer they are.)

3. “If the government doesn’t need to obtain tax dollars in order to pay its bills, why does the government borrow dollars?”

Unlike state and local governments, the federal government doesn’t need to borrow, and indeed, it doesn’t borrow. The misnamed federal “borrowing” and “debt” is the total of deposits into T-security accounts.

When you buy a T-bill (or T-note or T-bond), you instruct your bank to take dollars from your checking account and deposit them into your T-bill account.

Because the federal government has no need for your dollars, it simply leaves your dollars in your account until your T-bill matures. It even adds dollars in the form of interest.

Then it “pays off” your T-bill by sending your dollars back to your checking account. Sending your dollars back to you is no burden on the federal government, and because no tax dollars are used, it is no burden on taxpayers, either.

4. If the federal government doesn’t need to borrow, why does it issue T-bills, T-notes, and T-bonds?

The purpose of T-securities accounts is not to acquire spending money. The purposes are to:

A. Provide a safe place for dollar-users to hold dollars. This safe-haven availability increases the demand for dollars and stabilizes the dollar.

B. To help the Fed control interest rates.

5. “If we just print money won’t we be like Zimbabwe and Argentina?”

Those sick economies not only have dysfunctional governments, but are in the midst of hyper-inflations, which are caused by shortages, most often shortages of food.

In fact, all hyperinflations are caused by shortages. Money “printing” is a wrong-headed government response to hyperinflations, much like pouring gasoline on a car fire.

Government money “printing” is a response to hyper-inflations, not a cause.

Decreases in deficit growth (red line) lead to recessions (vertical, gray bars). Inflation (blue line) does not correlate with deficit spending.

Deficit growth adds dollars to the economy, which increases Gross Domestic Product

GDP = Federal Spending + Non-federal Spending + Net Exports

All three of the above variables add dollars to the economy, which is necessary for economic growth.

Not only do decreases in deficit growth lead to recessions, but federal surpluses lead to depressions:

1804-1812: U. S. Federal Debt reduced 48%. Depression began in 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began in 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began in 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began in 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began in 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began in 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began in 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began in 2001.

It functionally is impossible to grow an economy while reducing the money supply. This would be like trying to cure anemia by applying leeches.

6. If federal “debt” growth is economically beneficial, why is my state (or county, or city) broke? 

Your state (or county, or city) is monetarily non-sovereign. It does not have a sovereign currency. It uses the dollar, which is the sovereign currency of the federal government.

Monetarily non-sovereign entities (like you and me), can run short of dollars and be unable to pay our bills. The federal government cannot run short of dollars, or be unable to pay its bills. Federal finances are different from non-federal finances.

Your state, county, or city are broke because their outgo exceeds their income, and they cannot create dollars at will, the way the federal government can.

7. So why doesn’t the federal government merely give everyone a million dollars and make us all rich?

The Ten Steps to Prosperity,” recommends that the federal government give more money to Americans (via deficit spending) than it currently does.

There, of course, is a limit.

The limit to federal deficit spending is an inflation that cannot be managed via interest rate control.

Inflation is a reduction in the value of a dollar vs. the value of goods and services. The value of a dollar is: Value = Demand/Supply. So if we increase the Supply, without increasing the Demand enough, the dollar Value goes down, and we have inflation.

The formula for the Demand for dollars is: Demand=Reward/Risk. The government increases the Reward for owning dollars by raising interest rates. That is why raising rates is said to “strengthen” the dollar.

In short, the government should give more dollars and dollar-denominated benefits to the people. This would grow the GDP and narrow the Gap, so long as the Fed can control inflation by increasing the Demand for dollars.

8. Which is better for the U.S. economy: Exports or imports?

Imports of goods and services have more value to the U.S. economy than do exports.

Exports of goods and services actually means “importing dollars in exchange for labor and scarce materials.” But because our Monetarily Sovereign nation has the unlimited ability to create dollars, importing dollars has no value to the nation as a whole.

Imports of goods and services (i.e. “exports” of goods and services) add valuable and scarce assets to the economy while requiring less labor and scarce materials than would products and services created here.

The question can be restated: Which is better: Importing something that we have the unlimited ability to create and at no cost (i.e. dollars), or exporting something that costs effort and valuable raw materials (i.e. goods and services) to create?

9. Are illegal aliens a danger to, and a burden on, America? 

This question usually devolves to several concerns, none of which have anything to do with the legal status of immigrants.Related image

Concern 1. Illegal aliens cause crime. This repeatedly has been shown to be false. The crime rate for illegal aliens is lower than the crime rate for citizens. The reasons probably relate to the fear of being apprehended and deported, and to the reasons why desperate people elect dangerous illegal immigration.

Concern 2. Illegal aliens don’t work and don’t pay taxes, but use our benefits. This too has been shown to be questionable. These people made the hazardous trip to the U.S. in order to create better lives for their children and themselves. Though the federal government doesn’t need tax dollars, illegal immigrants tend to be hard-working, tax-paying people, who often are precluded from using most social services.

Concern 3. Illegal aliens bring drugs. The vast majority of drug smuggling is not done by illegal aliens. Drugs come in through legal entrances, via boats, trains, trucks, buses, and cars, rather than via the piddling amounts mothers and children could sneak through.

Concern 4. Illegal aliens steal jobs from American citizens. These people are consumers, who via their spending, actually create jobs. They themselves accept the lowest paid, most physically difficult jobs, that are not popular with U.S. citizens.

On balance, illegal aliens provide a huge benefit to the U.S., by being highly motivated to succeed, and by purchasing products and services from American businesses.

10. Even if the federal government never can run short of dollars, and can afford Medicare for All, won’t we run out of resources, like doctors, hospitals, and medicines?

We address this question in “A concern about ‘Medicare for All.'” Briefly summarizing that article:

A. Every major change, from cars, to phones, to planes, and to high-rise buildings leads to shortages of labor and materials that previously were not used.  Medicare itself created a shortage of medical personnel, so today hospitals all over the country have been expanding to provide more services.

B. Personnel shortages lead to higher pay which draws more people into the profession.

In summary, everyone has strong intuitions about economics, though economics realities are not intuitive. The reason is: Our federal government is Monetarily Sovereign, which is very unlike the personal experiences of the populace.

The people have been given the mistaken belief that federal finances are like personal, state, and local finances.

The above questions illustrate the common misunderstandings about our nation’s economy.

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
2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. F
ree education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually. 
8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

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

MONETARY SOVEREIGNTY

Another reminder why reducing the federal deficit is national suicide. Your health, your children’s health and your grandchildren’s health are being sacrificed. Tuesday, May 17 2011 

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Another reminder about why reducing the federal deficit is national suicide: Your health, your children’s health and your grandchildren’s health is being threatened — no more than threatened, compromised. And it’s all because of the myth the federal deficit and federal debt are “unsustainable.”

While the myth is easily disproved, the politicians, media and mainstream economists refuse to learn.

By Associated Press, Updated: Tuesday, May 17, 2011
WASHINGTON — A disease standoff may be brewing: How can Alzheimer’s research receive more scarce dollars without cutting from areas like heart disease or cancer?

In one of the stark realities of the budget crisis, scientists’ chances of winning research dollars from the National Institutes of Health for any condition have dipped to a new low.

“We are clearly not able to support a lot of great science that we would like to support,” NIH Director Dr. Francis Collins told senators last week. This year, for every six grant applications that NIH receives, “five of them are going to go begging.”

That’s down from nearly 1 in 3 grants funded a decade ago, and 1 in 5 last year. And it comes before the looming fight over how much more to cut in overall government spending for next year, and where to make those cuts.

Already, a new report says one of the biggest losers is aging research, despite a rapidly graying population that promises a worsening epidemic of dementia, among other illnesses.

“Nobody wants to say Alzheimer’s is worse than diabetes or heart disease or cancer,” says Dr. Sam Gandy, a prominent neuroscientist at New York’s Mount Sinai School of Medicine.

But “part of the problem now with all the pressure to cut the budget … is that for Alzheimer’s to get more, something else has to lose,” adds Gandy. His own lab is scrambling for funds to study a potential dementia drug after losing out on an NIH aging grant.

The NIH pays for much of the nation’s leading biomedical research. Republicans and Democrats alike have long been staunch supporters. But the agency’s nearly $31 billion budget offers an example of the hard choices facing lawmakers, especially if they’re to meet House calls for a drastic scale-back of overall government spending.

So which do you fear more: Disease or the federal deficit, knowing the federal government has proved it can support any size deficit? Have you been so brainwashed by the Tea (formerly Republican) Party nuts, you are willing to lay your health, and the health of your family on the line?

Consider aging issues.

The NIH spends about $469 million on Alzheimer’s research, says a new report from the Alzheimer’s Foundation of America that criticizes overall aging research as “a minuscule and declining investment.”

About 5.4 million Americans now have Alzheimer’s disease, and studies suggest health and nursing home expenditures for it cost more than $170 billion a year, much of it paid by Medicare and Medicaid.

NIH’s Collins told a Senate appropriations subcommittee that there’s a “very frightening cost curve.” In 2050, when more than 13 million Americans are projected to have Alzheimer’s, the bill is expected to reach a staggering $1 trillion. But he said that cost could be halved merely by finding a way to delay people getting Alzheimer’s by five years.

The debt-hawks are fond of showing you graphs illustrating (falsely) how the increase in older people will cause Social Security and Medicare to run out of money. But have they ever shown you a graph illustrating how many more people will get Alzheimers, for lack of medical research?

Monday, Republican presidential contender Newt Gingrich jumped into the debate, saying that over the next four decades Alzheimer’s could cost the government a total of $20 trillion. He suggested selling U.S. bonds to raise money for research rather than have the disease compete each year for a share of the federal budget.

“We are grotesquely underfunded,” Gingrich said of health research dollars.

Yes, we are. Nice of him to notice. But creating T-securities out of thin air, then exchanging them for dollars we previously created out of thin air is foolish.

How foolish? Newt favors reducing the debt, but his bond-selling plan increases the debt. This demonstrates the idiocy of the Tea (formerly Republican) Party debt-reduction position. We wouldn’t need to struggle with complex, convoluted, nonsensical plans if we simply would end the debt-hawk control over our thinking. Stop selling bonds; fund with deficit spending.

Competition for today’s dollars is fierce, with applications up 60 percent at the aging division alone since 2003. Aging chief Dr. Richard Hodes says last year, his institute couldn’t pay for about half of what were ranked as the most outstanding applications for research projects. Still, he hopes to fund more scientists this year by limiting the number who get especially large grants.

What’s the squeeze? Congress doubled the NIH’s budget in the early 2000s, an investment that helped speed the genetic revolution and thus a host of new projects that scientists are clamoring to try. But in more recent years, economists say NIH’s budget hasn’t kept pace with medical inflation, and this year Congress cut overall NIH funding by 1 percent

The Obama administration has sought nearly $32 billion for next year, and prospects for avoiding a cut instead are far from clear. Sen. Tom Harkin, D-Iowa, who chairs the subcommittee that oversees the issue, warns that under some early-circulating House plans to curb health spending, “severe reductions to NIH research would be unavoidable.”

Still the Tea (formerly Republican) Party doesn’t get it. They don’t understand the simple premise that medical progress requires medical research.

Sen. Jerry Moran, R-Kan., pushed Collins to make the case that investments in medical research really can pay off.

Collins’ response: Four decades of NIH-led research revealed how arteries get clogged and spurred development of cholesterol-fighting statin drugs, helping lead to a 60 percent drop in heart-disease deaths. Averaged out, that research cost about $3.70 per person per year, “the cost of a latte, and not even a grande latte,” Collins told lawmakers.

Get it now, debt hawks? Probably not. But are you willing to fight for your family’s health? Contact your Washington representatives and tell them our lives are being threatened by their misguided budget-reduction nonsense.

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 dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up my future.”

MONETARY SOVEREIGNTY

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