–Screwed again, and proud of it. Federal debt vs. business debt

Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Cutting the deficit is the government’s method for taking dollars from the middle class and giving them to the rich.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
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President Obama is breaking is own arm, patting himself on the back for applying leeches to an anemic patient (i.e. draining billions of dollars from our sick economy).

He has given the upper .1% income group the increase in FICA (the worst tax in America) they wanted. No, not wanted for themselves. They don’t pay FICA. They wanted it for the 99.9%, to increase the income gap.

Just in this way alone, Obama has damaged America far more than Osama ever did.

Fortunately for the economy, raising the top rate on people making above $400 thousand per year, will collect so little money as to be essentially meaningless. (Those people know how to stay out of the top rate. Ask Warren Buffett.)

So while the tax increase on the rich does no good for anyone, it scarcely does any harm, either. It took Congress and the President all these months to create a nothing. And the Champagne glasses are lifted on high.

(And who cares about that FICA tax increase on the middle class anyway? After all, isn’t the federal government running short of dollars? And the middle and lower classes have plenty of dollars to spare, don’t they?)

The first myth of economics is: Federal deficits are too high. It is a myth promulgated by politicians, who are paid by the upper .1% income group to widen the gap between them and the rest.

The second myth of economics is: Social Security will run out of money. Also promulgated by that same nefarious group, who are paid by that other nefarious group. It’s all about the income gap.

My estimate: About 99% of the nation believes these myths, putting lie to the notion that you can’t fool all the people all the time. (Hey, even I have dear friends who tell me they are proud to pay taxes to support America. And these are advanced-degree-smart people.)

This blog has provided repeated proof of the myths’ fallacies, so we needn’t deal with them further, here. Instead, let’s deal with another myth: Federal deficits are harmful while private borrowing is helpful.

The Fed, Congress, the President, and most of the sages commenting in the media are convinced that all things private are superior to all things public. I often read how “the government doesn’t create anything,” which I suppose almost, but not quite, is true if one eliminates from consideration all federally funded projects that are executed by the private sector.

That is, the government does not build roads, bridges and dams. Private contractors do. The government doesn’t do much research, doesn’t grow much food, doesn’t create many medicines, doesn’t cure diseases, doesn’t do much educating, doesn’t build many ships and planes — the government doesn’t do much except fund these activities — activities that wouldn’t happen without federal funding.

So perhaps, for a new year’s resolution, the wags can vow not to say during all of 2013, “The government doesn’t create anything.”

Sadly, the Fed, an agency of the government (yes, it is), seems to believe the myth, for it repeatedly lowers interest rates (that’s what QE is all about) in a silly effort to get the private sector borrowing, at the same time, advocating less deficit spending by the federal government.

In their upside-down world, deficit spending by an entity with the unlimited ability to create dollars, is unsustainable and should be reduced, while deficit spending by entities that repeatedly run short of dollars and go bankrupt, should be encouraged!

The graph below shows annual changes in Federal debt (blue line) and annual changes in business debt (red line). Does it strike you how these two lines relate to recessions?

Business debt rises in advance of recessions and predictably, falls during recessions. Federal debt falls in advance of recessions and rises during recessions. Again and again and again. (I stress “again and again” to give the “correspondence doesn’t prove cause” deniers something to chew on.)

How do you explain this phenomenon? My explanation is that as businesses borrow more, they becomes overextended. Meanwhile, as the federal government, which never can be overextended, deficit spends less (probably because of Congress and the President), the economy suffers from a lack of funds (the anemic patient being bled by leeches).

These two processes meet at a recession, at which time business borrowing virtually stops and federal deficit spending must be increased to end the recession. Funny, how the much-loathed deficits are necessary to rescue a dying economy.

The following graph shows essentially the same thing, except rather than showing absolute debt numbers it compares the ratio of federal debt to total debt vs. the ratio of business debt to total debt.

Again we see that as personal debt rises, here as a share of total debt, and federal deficits fall, also as a share of total debt — that’s when we have recessions. Further, recessions are cured when federal deficits are a rising share of total debt, and business debt is a smaller share.

Interestingly, we only seem to have recessions when the year-to-year change in the federal debt / total debt ratio is less than 0.00.

So what is happening today?

Today, Federal debt is falling as a share of total debt and business debt is rising — a recession scenario, with only one positive note: The year-to-year change still is above 0.00. So, that could mean another recession is not yet upon us. But, it’s coming soon enough.

Today’s scenario is what one would expect from a President and Congress that have been bribed by campaign contributions to reduce federal deficits and to increase private borrowing (via low interest rates).

As this is written, President Obama is strutting about his great “victory,” but barring unforeseen changes, history will judge him as mediocre at best — probably closer to the bottom than to the top.

And we had such great hopes.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

#MONETARY SOVEREIGNTY

–Republicans double down on middle class destruction. Dems not far behind.

Deficit reduction, ala “austerity,” always destroys an economy.

It is destroying Greece. It is destroying France, Italy, Spain and now, even Germany. Deficit reduction immediately preceded every depression in U.S. history.

Because economic growth requires money growth, even deficit growth reduction destroys an economy. Almost every recession in U.S. history has been preceded by deficit growth reduction. While recessions require a trigger event, virtually all recessions begin with deficit growth reduction.

The reason is simple: By formula, Gross Domestic Product = Federal Spending + Non-federal Spending – Net Imports. Deficit reduction reduces Federal Spending and Non-federal Spending. Basic algebra demonstrates that deficit reduction must reduce GDP growth.

And that is why both parties, but especially the Republicans, wish to reduce the deficit. Destroying the economy has a greater negative effect on the middle and lower classes than on the upper .1%, so deficit reduction increases the gap between the rich and the rest — exactly what the .1% have paid the politicians to do.

Previously, the politicians have focused on increasing the eligibility ages for Social Security and Medicare, but that doesn’t do enough damage to the middle- and lower classes, so additional measure are being considered:

From ThinkProgress: Sen. Lindsey Graham (R-SC): “I’m not going to raise the debt ceiling unless we get serious about keeping the country from becoming Greece, saving Social Security and Medicare. So here’s what i would like: meaningful entitlement reform — not to turn Social Security into private accounts, not to take a voucher approach to Medicare — but, adjust the age for Social Security, CPI changes and means testing and look beyond the ten-year window. I cannot in good conscience raise the debt ceiling without addressing the long term debt problems of this country and I will not.”

Translation: Black is white. Failure to raise the debt ceiling actually makes the U.S. into Greece, by creating the same problem that plagues Greece: The inability to create money.

“Saving” Social Security and Medicare and “entitlement reform” mean destroying Social Security and Medicare.

The “long term debt problems” are that the deficit is too small.

From ThinkProgress: Sens. Bob Corker (R-TN) and Lamar Alexander (R-TN) introduced a plan today that would raise the federal debt limit by $1 trillion in exchange for $1 trillion in cuts to Medicare, Medicaid, and Social Security.

Translation: “$1 trillion in cuts to Medicare, Medicaid, and Social Security” won’t hurt our constituency, the top .1% income group, but it will destroy the lives of all you middle- and lower classes. But we’ve brainwashed you into submitting like obedient little dogs. Now, go fetch.

And, since you’re so compliant, we have another surprise for you. We’re going to switch our measure of inflation, from CPI to Chained CPI. You have no idea what that means, but bottom line, it will reduce your Social Security benefits. Here’s a graph showing the difference:

See how the lines keep diverging. After little more than ten years, the chained measure is 3% less than the current measure. If your SS benefits had been $1000 a month under the current measure, they would have been only $970 a month under the chained measure — a loss of $360 per year. And because the lines keep diverging, the loss will keep growing.

We, of the upper .1%, don’t care, but you middle- and lower classes will be hurt — perfect for increasing the income gap.

Reducing benefits and increasing the eligibility age shouldn’t bother you, because you are going to die sooner, anyway:

Income And Life Expectancy
By Paul Krugman

Since 1977, the life expectancy of male workers retiring at age 65 has risen 6 years in the top half of the income distribution, but only 1.3 years in the bottom half.

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Here is how deficit reduction really works:
. . .

We’re cutting your benefits, but who cares?

.
You’ll be dead before you qualify.

Cut food stamps . . . Cut Social Security . . Cut Medicare
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When are the middle- and lower classes going to realize what’s being done to them and start to protest?

Rodger Malcolm Mitchell
Monetary Sovereignty

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#MONETARY SOVEREIGNTY

–Tricky Paul Krugman, still no cigar.

Those of us who sometimes believe Paul Krugman finally, almost, maybe, possibly is starting to understand Monetary Sovereignty (based on occasional comments seeming to indicate a flicker of light behind that beard), are due to be disappointed yet again.

In his article in the December 18, 2012 New York Times, titled A Double Shot of Misunderstanding, he returns to abject cluelessness.

He begins correctly by saying:

One of the enduring fantasies of the pundit class – most dramatically demonstrated by the ludicrous Politico piece on What Insiders Know – is that all we need to fix our economic problems is to get the great and the good together and bypass those pesky elected officials. Business leaders, in particular, are presumed to have the know-how to deal with all the important issues.

But the reality is that the business leaders intervening in our economic debate are, for the most part, either predatory or hopelessly confused (or, I guess, both).

I’d put Fix the Debt in the predatory category; it’s quite clear that the organization (which is yet another Pete Peterson front, this time explicitly dominated by corporate interests) has an agenda more focused on cutting social insurance and corporate taxes than on reducing the deficit per se.

That’s the kind of truth that falsely lifts the hopes of MMT and Monetary Sovereignty adherents. And the article continues on a positive note:

OK, first of all, the fiscal cliff is NOT A DEBT PROBLEM. In fact, it’s the opposite: . . .

Pretty good, right? He’s got it. He’s got it. Oh, wait, here’s the last part of that sentence.

. . . the danger is that with expiring tax cuts, expiring unemployment benefits, and the sequester, we’ll reduce the deficit too fast.

TOO FAST??? He’s saying that he approves of reducing the deficit, but just wants to do it slower!

Yikes!

As a reminder to all, Gross Domestic Product = Federal Spending + Non-federal Spending – Net Imports.

Krugman, you know this fundamental formula as well as I do. So, think. What does reducing the deficit do, Paul? Fast or slow, it reduces Federal Spending and it reduces Non-federal Spending. Deficit reduction reduces the factors that make up GDP. In short, ANY deficit reduction not only is unnecessary (what’s the purpose?) but it is downright harmful.

Whether we move quickly or slowly, applying leeches will kill an anemic patient.

Every depression and nearly every recession has come on the heels of deficit reduction, and all depressions and recessions have been cured with deficit increases. See: Introduction.

Aside from a rare inflation that the Fed cannot control in its usual way (interest rate increases), there never, ever is a good time for federal deficit reduction. NEVER.

So why does Krugman dance around the truth, like a temptress shedding veils? Either he’s ignorant, which I doubt, or he dares not come right out and completely demolish what his, and every other major newspaper owner says. He simply does not have sufficient testosterone to admit that deficit reduction — even a little deficit reduction — is downright nuts.

I mean, after all, Paul Krugman is paid by the upper .1% income group, isn’t he? And no one ever got fired for laughing at the boss’s jokes.

Rodger Malcolm Mitchell
Monetary Sovereignty

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#MONETARY SOVEREIGNTY

–Suggested: The National Enquirer approach to solving the mythical “deficit crisis.”

For every motive, there’s yet another motive

An article in New Scientist Magazine, ”The link between devaluing animals and discrimination,” makes a connection between our treatment of animals and our treatment of other human beings.

Our feelings about other animals have important consequences for how we treat humans
21 December 2012 by Gordon Hodson and Kimberly Costello

“AUSCHWITZ begins whenever someone looks at a slaughterhouse and thinks: they’re only animals,” wrote the philosopher and social commentator Theodor Adorno. He argued that humans degrade, exploit and willfully murder “under-valued” other people once they are considered to be animal-like.

Genocides can happen, therefore, when we think of members of other groups – outgroups – to be considerably less human than ourselves.

These observations led prejudice researchers, including us, at Brock University in Ontario, Canada, to develop two novel propositions about the nature of dehumanisation and prejudice. The first is that the perception of a divide between humans and animals fuels prejudice toward human outgroups, such as immigrants or racial minorities.

The second is that this animal-human divide effect is explained by heightened dehumanisation of the outgroups.

In previous posts we have argued that the public, already brainwashed into believing the federal deficit should be reduced, does not accept a scientifically-based, non-intuitive re-education in economics. Instead, we should indulge human nature, and provide the public with an intuitive, “National Enquirer” approach to learning: Begin with the scandal, then flesh it out with facts.

The scandal is: The upper .1% income group pays politicians (via campaign contributions) and the media via ownership) to increase the income gap by impoverishing the 99.9%.

The facts are:
*Deficit reduction is not necessary, indeed is harmful, in a Monetarily Sovereign nation, which has the unlimited ability to pay its bills.
*The upper .1% income group pays politicians and the media to lie about the need to reduce deficit spending, nearly all of which benefits the 99.9%, as a way to increase the income gap.

Increasing the gap is vital to the wealthy, because it is the gap, not absolute earnings, that defines “rich.” Were there no income gap, no one no one would be rich.

And that is where the above article comes to play, because deficit cutting is inhumane. It causes poverty, hunger, sickness, homelessness and every sort of human misery one can imagine. Even the most cynical occasionally must be struck by the cruelty of the .1% in dooming their fellow human beings, the 99.9%, to lives of pain, misery and despair. Austerity is the ultimate genocide.

But, the 99.9% are not viewed as human beings, perhaps not even as animals. In the eyes of the .1%, the 99.9% have become caricatures, viewed as lazy, indolent, lawless, and deserving of their misery. And that is not the worst of it.

Building on experiments with university students, the results provided direct evidence that young children dehumanise other children along racial lines.

We replicated these patterns among the parents. We were intrigued to find that parents who endorsed social hierarchy and inequality reared children with stronger beliefs in dehumanisation and racial prejudice.

Nothing startling here. Children raised by bigots are more likely to be bigots. Since the .1% are biased against the 99.9%, their children inherit that bias, and the anti-99.9%% bigotry continues through the generations.

However, it is not just the .1% who are biased. It is the 1%, the 10%, the 50%, indeed all groups seem to be biased against groups below them on the income scale. Groups near the bottom even seem biased against themselves, inheriting a group inferiority complex.

The implications are stunning. Everyone despises those below them, a phenomenon which plays directly into the .1%’s hands. When Republicans sneered about “food stamp queens,” much of America agreed.

Psychologically, the .1% are the “parents” of our economy, and they have reared us to dehumanize those earning less. So we accept the notion the poorer are sloths who deserve their misery, and those who ask help from the government are freeloaders.

This bias serves the .1%’s efforts well. It promotes acceptance of reduced benefits for lower income groups. In essence, even when a government action hurts those in one income group, they will accept it if it hurts a lower income group even more, widening the gap between them and the lower group.

The .1% plays on the common desire to widen gaps below. To change perceptions, Monetary Sovereignty must play on the common resentment at widening gaps above.

Summary: Human nature desires the gap below to be widened and the gap above to be narrowed. Deficit reduction punishes lower income groups most, thus widening all gaps, which benefits the wealthiest most.

The middle and lower classes have been brainwashed by the .1% (via their paid representatives, the politicians and the media) to ignore the widening of the higher income gaps and to relish widening the lower gaps. This is furthered by dehumanizing the lower income groups.

The solution is first to focus on the .1%’s shameful successes in widening the upper income gaps, and the scandal of how these successes were purchased. With that scandal as a platform, the 99.9% will be more amenable to discussions of economic facts.

That is what I term, “The National Enquirer approach to solving the mythical ‘deficit crisis.’” Reveal the scandal first; facts to follow.

Rodger Malcolm Mitchell
Monetary Sovereignty

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#MONETARY SOVEREIGNTY

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