Tag: Free Money

–Bank closings from 2008 through 2010

The debt hawks are to economics as the creationists are to biology.

I saw these two graphs on a good blog by noted debt-hawk Barry Ritholtz, called The Big Picture. You can see the post at http://www.ritholtz.com/blog/2010/09/fdic-bank-failures-7/comment-page-1/#comment-412084

Bank Failures since June 2008

These graphs brought to mind a few of the questions I’d like to ask those who keep demonstrating for “less government”:

1. How many bank depositors have been saved by FDIC?
2. How much depositor money has been protected by FDIC?
3. Do you feel there is too much regulation of banks?
4. Would you like to deposit your money in a bank that is not insured by FDIC?

Every time you hear someone say there is too much government, ask specific questions about what he/she would like to give up. Less Social Security? Less Medicare? Less military? Fewer roads and bridges, or less maintenance thereof? Eliminate the Supreme Court? Fewer national parks? Less inspection of our food and drugs? Less research? Where exactly should the cuts be made? (And don’t let them get away with “Eliminate waste.” That’s a cop out).

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

No nation can tax itself into prosperity

–Warren Mosler interview: What if China stops buying U.S. debt?

The debt hawks are to economics as the creationists are to biology.

Warren Mosler is that rare individual who is both a successful businessman and an economist. He now is running for the Senate from Connecticut.

Warren has the ability to explain abstruse economic subjects in simple, illuminating ways. Here’s one excerpt from a recent interview. You can read the entire interview at Interview.

(Background: The Chinese buy U.S. T-securities by transferring U.S. dollars (not yuan) from their checking account at the Federal Reserve Bank to China’s T-security account, also at the Federal Reserve Bank. Later, when the Chinese redeem those T-securities, the money is transferred back to China’s checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed.)

Interviewer: “Money the Chinese earn by sending merchandise to the United States are credits in the U.S., and these credit units are nonredeemable, so Chinese owners can do nothing with these things unless they use them to buy American products, and if they do, those units become profits for American firms.

But there is also another possibility, which sometimes raises concerns in the larger public, and this is what happens if China should choose to get rid of these dollars by selling the U.S. securities they own.

While the amount of dollars owned by foreigners doesn’t change, the price of the dollar would in fact decline. If China sells off American debt, dollar depreciation may be substantial.”

Mosler: “Operationally, it’s not a problem because if they bought euros from the Deutsche Bank, we would move their dollars from their account at the Fed to the Deutsche Bank account at the Fed.

The problem might be that the value of the dollar would go down. Well, one thing you’ve got to take note of is that the U.S. administration is trying to get China to revaluate currency upward, and this is no different from selling off dollars, right?

So, what you are talking about (selling off dollars) is something the U.S. is trying to force to happen, would you agree with that?”

Interviewer: “Yes.”

Mosler: “Okay, so we’re saying that we’re trying to force this disastrous scenario—that we must avoid at all costs—to happen.

This is a very confused policy. What would actually happen if China were to sell off dollars? Well, first of all, the real wealth of the U.S. would not change: the real wealth of any country is everything you can produce domestically at full employment plus whatever the rest of the world sends you minus what you have to send them, which we call real terms of trade.

This is something that used to be important in economics and has really gone by the wayside.

“And the other thing is what happens to distribution. While it doesn’t directly impact the wealth of the U.S., the falling dollar affects distribution within U.S., distribution between those who profit from exports and those who benefit from imports.

And that can only be adjusted with domestic policy. So, number one, we are trying to make this thing happen that we are afraid of, and number two, if it does happen, it is a demand-distribution problem, and there are domestic policies to just make sure this happens the way we want it to be.”

So there you have it. All the hand wringing about what happens if China were to stop buying T-bills and instead buy some other country’s money is just a bunch of blah, blah, blah.

The relative value of U.S. dollars, compared with other money, would go down, which is exactly what the Federal government has been trying to effect — foolishly, I might add.

When China or any nation buys T-securities (aka “lends us money”), they must use dollars, and the dollars never leave the Fed.

Even if China were to buy another nation’s debt, using dollars it has earned from exports, the dollars still never would leave the Fed.

Think closely about this process and you will see why federal “borrowing” is a meaningless exercise.

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

No nation can tax itself into prosperity

 

–The “Pledge to America” Sham

The debt hawks are to economics as the creationists are to biology.

The House Republicans have published a “Pledge to America.” It is a blatant, political sham. It includes:
–Make the Bush tax cuts permanent
–Give small businesses an additional tax deduction
–Fully fund missile defense
–Strengthen our Mexican border
–Reduce government spending to the 2008 levels
–Reduce the federal deficit

See anything wrong with these nice, safe political “pledges”? If you make the tax cuts permanent, give extra tax deductions to small business, fully fund missile defense and strengthen our border, there is no way to reduce spending to the 2008 levels and reduce the deficit — nor should we. Reduced spending (aka “money creation”) would doom us to an immediate return to recession. All six depressions and nearly every recession immediately have followed reductions in deficit growth. The reason: Federal deficits provide the money for economic growth.

Further, what spending would be cut? See: Federal Debt cuts for a list of right-wing recommended spending cuts and tax increases. Ask yourself which ones you like.

And, of course, nothing is said about Social Security and Medicare, which politicians will tell you (wrongly) require either tax increases or benefit cuts.

The Pledge also includes:
–Repeal the health-care law
–Ensure access for patients with pre-existing conditions

But, of course, ensuring access for patients with pre-existing conditions is one of the benefits of the health care law the House Republicans want to scuttle. The health care plan also contains such benefits as:
*Young people can remain on parents’ insurance until age 26
*No discrimination against children with pre-existing conditions
*No dropping people from coverage when they get sick
*No lifetime limits on coverage
*Free preventive care
*Increased ability to appeal decisions made by your health plan
And other benefits that slowly come on line between now and 2014. How many of these would you like to forgo if the health care plan is repealed?

And the Pledge includes:
–Tough sanctions against Iran (but no mention is made of Iraq, Pakistan and Afghanistan, where our troops actually are fighting and additionally, spending massive amounts of money.)

In short, the House Republican “Pledge” includes a potpourri of popular-sounding, though contradictory ideas. They want to spend more and spend less. They want to increase benefits and reduce them. They want to cut taxes and cut the deficit. Meanwhile, the public has been sold on the idea of “reduced federal deficits,” while not understanding what that really means. It means higher taxes and/or reduced federal benefits.

And it means recessions and depressions. But the politicians don’t tell you that.

Yes, the Pledge is a sham, but it will fool some of the people, and that might be enough.

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

No nation can tax itself into prosperity

–What is the American dream?

The debt hawks are to economics as the creationists are to biology.

What is the American dream? Does it focus on money, taxes, deficits, debt and government? Or does it focus on people?

Today’s oh-so-chic belief among debt hawks, mainstream economists, some Democrats, most Republicans, all Tea Partyers, the public and the media is: The federal government and the federal debt are too big. The government should get off our backs and allow our John Wayne, American, can-do spirit to take over. We don’t need big government; we would rather roll up our sleeves and do it ourselves. The main problems with big government are: It requires big taxes and it inefficiently does what we-the-people can do better.

Wrong on all counts. You who understand monetary sovereignty already are aware there is no relationship between federal spending and federal taxing. The government can spend endlessly, without taxes. You also understand that federal debt = money, which is necessary to grow our economy. And while big government can be massively inefficient (as can business, for that matter), there are several things big government can give us, that business cannot give us as well or at all.

In another post on this blog, I list some of the government funtions the right wing would like to eliminate. See: Debt hawk proposals.

I believe the American dream should include:

Universal health care: There is no reason every man, woman and child in America, citizen and non-citizen, ever should lack health care – and not just any health care, but the world’s best health care. Medicare not only should be expanded to pay more and for more procedures, but it should cover everyone. It should cover doctors, hospitals, drugs, home care and hospice. There simply is no reason why anyone should suffer health problems for lack of money.

Universal education opportunity: In other posts on this blog, I have made the case for paying students a salary for attending school.

Freedom from poverty: Poverty has many causes. The debt hawks act as though poverty always were the fault of the poor, and are reluctant to provide assistance, “lest it encourage laziness.” There are many reasons for poverty, and laziness is one of them, but surely not a primary one. Most poverty is thrust upon people who either cannot work or cannot find work. No one in America should go hungry. No one in America should be forced into homelessness.

The problem with the high rise, slum housing projects like notorious Cabrini Green in Chicago, was not the concept. The problems were crime and maintenance. Had these buildings been treated like condos, with plenty of police protection and 24-hour maintenance, they could have been as suitable as an upscale, high rise condo. However, the government built them, then walked away from them, and the criminals took over, while the buildings fell apart.

Retirement: It simply is a fact of life that few people are able to amass enough money during their working years, to support themselves during retirement, without a significant loss of life style. Social Security is a good, though inadequate, support system for our senior citizens, and now there is talk about raising the retirement age and reducing benefits in other ways.

FICA should be eliminated and Social Security benefits should be increased. Only big government can do this.

Security: Police and the army: Obviously the responsibility of big government, unless you believe in the vigilante system of justice or wish to fight the enemy with your own hands.

Safety in food, drugs, investments, environment: Another responsibility of big government, unless you prefer eating unsafe food, taking unsafe drugs, having unsafe banks and watching our environment degrade. If anything, more government help is needed, not less, as this most recent recession has demonstrated.

Transportation: Yet another responsibility of big government, unless you and your neighbors plan to take pick and shovel in hand, to build roads, airports, and public (oops, private) transportation.

There are many other irreplaceable functions of big government, and the point is, people who decry big government simply do not know what they are asking for. If anything, the government needs to get bigger, to take care of our unmet people needs. I agree with not wanting federal taxes. The government neither needs nor uses them. But the notion that government should “get off our backs” is misguided at best and suicidal at worst.

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

No nation can tax itself into prosperity