Tag: income gap

–How our children are indoctrinated with the Big Lie.

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.
●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.
●Everything in economics devolves to motive.
=====================================================================

On April 9, 2013, a group called “Chicago Booth” asked professors from MIT, Harvard, Yale, Berkeley, Chicago and Princeton to rate the following statement::

Countries that let their debt loads get high, risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.

The question is so poorly written it cannot be answered. Sadly, these professors, each from a distinguished school, didn’t object. They all answered.

Some of the problems are:

1. It is a three-phrase question, and each phrase changes the possible answer.
2. No definition is given for “their debt loads” (The whole nation’s or just the central government’s?)
3. No definition is given for “high,” nor for “higher bond rates.” (Higher than what?)
4. “fiscal sustainability” is not clear (Ability to pay bills? Ability to prevent inflation? Ability to grow economically? Ability to prevent recession, depression, stagflation, poverty?)
5. “doubts by lenders” (Doubts of what? Repayment? Inflation?)
6. “debt problems” (Specifically, what are the debt “problems” that becomes “more severe”?)
7. In total, the question assumed the answer (“Agree”) and the professors dutifully went along, without thought or concern, like little automatons.

The question might have been written by a high school freshman. But, as nonsensical as the question was, the answers were even worse.

Every one of these professors agreed with the statement! Yikes!

The closest anyone came to even approaching reality, was David Autor and possibly David Cutler, both of whom might understand the difference between Monetary Sovereignty and monetary non-sovereignty. But even they agreed with the statement.

The others’ answers were completely clueless. Aaron Edlin was so sure of his wrong answer, he added the supercilious comment, “Does gravity make bricks fall when dropped?” One is left to wonder when he last learned anything new.

And these people, from “top” schools, are teaching our children. What a disgrace for the U.S. educational system, when even our “best” schools turn out such wrongheadedness.

To my knowledge, there is one school (thankfully) in America, that teaches real economics: The University of Missouri, Kansas City.

The rest seem to teach a flat-earth philosophy, and if the following group is typical, our economics students, and indeed our nation, will suffer for many years.

Here are the professors and their responses. The number indicates 1-10 the strength of their agreement. In a few cases, they added a comment:

Daron Acemoglu MIT Strongly Agree 7

Alberto Alesina Harvard Strongly Agree 10

Joseph Altonji Yale Agree 7

Alan Auerbach Berkeley Agree 7

David Autor MIT Agree 6
This is generically true, but we don’t the threshold where it matters. And not clearly true for countries that borrow in their own currency.

Katherine Baicker Harvard Agree 3

Marianne Bertrand Chicago Strongly Agree 3

Raj Chetty Harvard Agree 4

Judith Chevalier Yale Strongly Agree 8
“Risk” is the operative word here; it is hard to forecast ex ante at what point the negative feedback loop will become problematic.

Janet Currie Princeton Agree 4

David Cutler Harvard Agree 3
Lots of particulars matter, including who it is owed to and whether the country has its own currency.

Angus Deaton Princeton Strongly Agree 7

Darrell Duffie Stanford Strongly Agree 10
In perfect transparent markets, the market clears at an appropriate yield in one step. In actuality, price discovery involves feedback.

Aaron Edlin Berkeley Strongly Agree 10
Does gravity make bricks fall when dropped?

Barry Eichengreen Berkeley Uncertain 7
Much depends on other factors like growth of the denominator of the debt/GDP ratio, which will vary with policies & circumstances.

Ray Fair Yale Strongly Agree 5

Pinelopi Goldberg Yale Agree 6

Michael Greenstone MIT Agree 7
Tough question is definition of “high”. See Rogoff/Reinhardt for best evidence. Does “high” differ for country w global currency, like US?

Robert Hall Stanford Strongly Agree 8
Simple math…interesting that it has not happened to Japan, however.

Bengt Holmström MIT Agree 8

Caroline Hoxby Stanford Agree 9

Kenneth Judd Stanford Agree 4
The debt load may be a factor in reputation but the US has experienced great increases in debt in the past without suffering these problems.

Anil Kashyap Chicago Strongly Agree 9
The only question is when the tipping point kicks in. Japan will face trouble after Europe is sorted out, as might the UK and maybe then US

Pete Klenow Stanford Strongly Agree 7

Jonathan Levin Stanford Agree 6
Yes, but clearly conditions vary – right now US can borrow easily with high debt, but some euro countries cannot.

Eric Maskin Harvard Agree 8

William Nordhaus Yale Agree 7

Maurice Obstfeld Berkeley Strongly Agree 10
Government vulnerability will depend on the maturity of its debt (more short term debt means more exposure) and the size of its deficit.

Emmanuel Saez Berkeley Uncertain 5

José Scheinkman Princeton Did Not Answer

Richard Schmalensee MIT Agree 3

Hyun Song Shin Princeton Agree 7

Nancy Stokey Chicago Strongly Agree 10
With debt/GDP around unity, a substantial risk premium can be the difference between the debt load being “sustainable” and “unsustainable.”

Richard Thaler Chicago Agree 3
Yes I suppose so, but what of it?

Christopher Udry Yale Agree 3

Luigi Zingales Chicago Strongly Agree 6

Throughout America, there are continuing efforts to test our students to determine what they are learning. Clearly there needs to be similar testing of teachers, to determine what they are teaching.

If this were our best and our brightest, America would be doomed.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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

–Nowhere to hide for Obamausterity and Congress. Reinhart/Rogoff research was a lie.

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.
●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.
●Everything in economics devolves to motive.
=====================================================================

By now you may have seen articles like this one:

Huff Post
Influential Reinhart-Rogoff Pro-Austerity Research Riddled With Errors: Study

Influential research by U.S. economists Carmen Reinhart and Ken Rogoff, touted by policymakers pushing government austerity in the United States and Europe, is riddled with errors, a bombshell new academic study claims.

The findings may not have much impact on the debate over government debt, and it probably won’t cause those who have spent the past several decades panicking over government debt to stop their panicking. But it seriously erodes the intellectual underpinnings of the pro-austerity argument — and makes the damage done by austerity in Europe and the U.S. in recent years all the more poignant.

Right. Deficit reduction, aka “austerity” has ruined millions of lives around the world. And it all has been unnecessary.

“This is a mistake that has had enormous consequences,” wrote Dean Baker of the Center for Economic and Policy Research. “If facts mattered in economic policy debates, this should be the cause for a major reassessment of the deficit reduction policies being pursued in the United States and elsewhere.”

And there is the key sentence, for of course, facts do not matter. The supposed need for deficit reduction is a lie that never has been based on facts, but rather on motive — the motive of the upper .1% income group to widen the gap between the rich and the rest.

The Reinhart-Rogoff paper, “Growth in a Time of Debt,” has been THE definitive research document backing austerity. It said, countries with public debt more than 90 percent of gross domestic product had significantly slower growth. It lied.

House Budget Committee Chairman (R) Paul Ryan, the notorious shill for the rich, referred to the Reinhart/Rogoff study in his 2013 budget, “The Path to Prosperity: A Blueprint for American Renewal.” He said, “Essentially, the study confirmed that the massive debts of the kind the nation is on track to accumulate are associated with stagflation — a toxic mix of economic stagnation and rising inflation.”

It is a lie — a lie that was obvious to those who understand Monetary Sovereignty, though it is a lie widely believed by a brainwashed public.

And when faced with the facts, Reinhart and Rogaff didn’t even have the decency to admit their errors. Instead, they announced, “. . . we are very careful in all our papers to speak of “association” and not “causality”. . . ”

Get it? They now say, the paper cited by politicians to “prove” big debt causes slow growth, doesn’t do that at all. They now say, slow growth may cause big debt, rather than the other way around. Maybe. Possibly. Or not. Summary: This much lauded paper is so filled with errors, it shows nothing and proves nothing. It’s a nothing.

Remember, not once, had Reinhart/Rogoff ever complained that their (false) research results were being misused. Instead they sat back and bathed in the warm glow of esteem provided by the austerity plotters, while millions suffered and died as a result.

Never did Reinhart/Rogoff say, “Our research provides no reason to cut Social Security, no reason to cut Medicare, no reason to fire federal employees, no reason to cut food inspection, drug inspection, food stamps and NASA, no reason to cut postal service, aid to the poor, aid to states and rebuilding of infrastructure, no reason to cut aid to education, anti-pollution efforts, ecology protection and R&D.”

Even now, Reinhart/Rogoff defend their findings by saying their data have “many nuances of alternative interpretation” (their words). “Many nuances of alternative interpretation”?? Isn’t that academic-speak for, “We are as likely to be wrong as right, but we won’t admit it.”

Bottom line, the need for deficit reduction is a monumental lie backed by quack-science.

John Boehner lied when he said America is broke. Obama lied when he said America needs to live within its means. The Republicans lie every time they say federal spending should be reduced. The Democrats lie every time they agree with the Republicans and Obamausterity.

They all are paid to lie by the .1%, via monster campaign contributions (Thank you, right-wing Supreme Court) and promises of lucrative employment after they leave office (aka being “Clintonized”). The rich want the gap between them and the rest to widen. They want to press the middle class down into poverty. They want to increase their power over the people. Reinhart/Rogoff were complicit in the plot.

Federal spending costs the taxpaying public nothing. Not one cent. But what does cost the public dearly is austerity. It costs in lost jobs and lost income. It costs in hunger, homelessness and crime. It costs in lost happiness and lost hope.

The rich claim our grandchildren will pay the federal debt. A lie. Our grandchildren will pay for the poverty our austerity passes down to them.

Will the revelations about the Reinhart/Rogoff “research” affect Obamausterity. Will the Republicans and the Democrats rethink their relentless drive to impoverish America, while widening the gap? Will they base their actions on economic fact rather than on myth?

Did fact keep despots from burning witches at the stake?

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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

–The debt-deposit duality. How much is the federal debt? $12 trillion? $10 trillion? $0?

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.
●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.
●Everything in economics devolves to motive.
=====================================================================

Quantum mechanics is counter-intuitive, partly because of the wave-particle duality, which says that something can be both a wave and a particle simultaneously, but when seen as one it cannot be seen as the other.

Measuring the location of a wave-particle is a matter of probability, wherein the location can be anywhere on the wave. For example, where exactly is the particle expressed by this wave?

Monetary Sovereignty

Is the particle At 1? At -2? Answer: Both and neither. It’s more likely to be at 0, but less likely to be there than at all the other options, combined.

Economics too has its counter-intuitive moments, and one of these has to do with the debt-deposit duality, wherein something can be both a debt and not a debt at the same time.

Monetary Sovereignty

Question: How much is the U.S. debt?

Is it the red bar(Debt Outstanding Domestic Nonfinancial Sectors – Federal Government Sector)? Is it the blue bar (Federal Debt Held by Private Investors)? Both or neither? My vote: The federal debt is $0, but if you disagree, we have to identify exactly how and what you are measuring.

Assume your friend asks to borrow $10,000 from you. If before lending that money, you discover your friend already owes various people $5 million, you might be less likely to lend him any more, for fear his debts are unsustainable and he is living beyond his means.

Your concern might be exacerbated if you discover he is asking dozens of people for loans. All that debt could be a serious burden on his ability to repay.

Now consider the circumstance in which you deposit $10,000 in your bank checking account. Is your bank now “in debt” to you? Yes, but not in the same way. You don’t view this as a loan to your bank. You view it as a “deposit.”

And if you discover that not only does your bank have many billions on deposit, but it actively is soliciting more deposits, that probably would not concern you. In fact, you may trust bigger (i.e. having more deposits) banks more than smaller banks.

Bank deposits are viewed differently from ordinary loans.

The federal debt is neither more nor less than the total of deposits in T-security accounts at the Federal Reserve Bank, the difference in “debt” amounts, being who owns those T-security accounts. For the red bar on the graph, the T-securities can be owned by government agencies and the private sector. The blue bar shows T-security ownership only by the private sector.

Either way, when you purchase T-bills, you simply have made a deposit in your T-bill account at the FRB. Should you worry about the size of deposits at the FRB?

You might worry about lending money to a friend who already is deeply in debt, and actively is seeking even more loans. But you probably didn’t worry about making a deposit at your local bank. So why would you worry about your deposit at the world’s safest, most powerful bank, the FRB?

JPMorgan Chase & Co. is weak compared with the Federal Reserve Bank, but has more than $1 trillion in deposits (debt). So, with all that “debt,” are they living beyond their means? Probably not. Last year, their profit exceeded $20 billion.

If someone says, “The government is $10 trillion in debt,” that may sound worrisome. But if someone makes the even more correct statement, “People have deposited $10 trillion with the Federal Reserve Bank,” you probably would not think that translates into, “The federal government is ‘living beyond its means.'”

The statements are identical. “Deposits” simply have a different inference from “debt,” though in one sense, deposits are debt.

The agenda for many people, particularly the upper .1% income/wealth group, is to scare the 99.9% with “debt clocks” and frightening statements about the federal debt being “unsustainable” or the government being “broke.” These lies rely on the negative implications of the word “debt.”

The nefarious purpose is to encourage the population’s agreement with austerity (debt cutting), which widens the gap between the .1% and the 99.9%.

Our Monetarily Sovereign federal government is not, and cannot go, “broke.” Deposits at the FRB cannot be “unsustainable.”

The Federal government doesn’t even owe those deposits; the FRB does, which it pays back simply by transferring dollars from holders’ T-security accounts to the same holders’ checking accounts.

And since the federal government doesn’t owe those T-security dollars deposited with the Federal Reserve Bank, I believe the federal debt is functionally $0.

The next time someone tells you the government owes trillions of dollars, which our grandchildren will have to pay, ask him, “Are you referring to the trillions of dollars in deposits at the Federal Reserve Bank, which are paid off simply by transferring dollars from depositors’ T-security accounts to their checking accounts?”

Of course, the person won’t know what you’re talking about, which is O.K., because they demonstrated they also don’t know what they are talking about, either.

100% ignorance.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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

–Weep for the gold (bubble) bugs

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.
●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.
●Everything in economics devolves to motive.
=====================================================================

Back in 2009, this bog carried the post, Fool’s Gold, in which we said:

Gold is one of those commodities, the value of which is based solely on faith. Just as there have been real estate bubbles, stock market bubbles, oil bubbles, tulip bulb bubbles, sugar bubbles, coffee bubbles and diamond bubbles, there have been gold bubbles, the biggest coming in 1980 and perhaps again, today.

For reasons beyond my ken, many people believe gold, the value of which is supported by nothing, somehow is safer than dollars, the value of which is supported by the full faith and credit of the United States government.

While I don’t have great faith in our government’s full faith (especially with the unusually low quality of today’s political leadership), I still think it is better than nothing, exactly what gold provides. Which brings me to this article from Associated Press:

Gold plunges to lowest in more than 2 years
2:10 PM ET, 04/15/2013 – Associated Press
NEW YORK — Gold plummeted to its lowest level in more than two years as traders rushed to sell their holdings following a big price drop on Friday.

The precious metal has plunged almost $200 over the past two days and is trading below $1,400 an ounce for the first time since February 2011.

The sell-off started Friday when the U.S. government reported that wholesale prices fell in March by the most in 10 months. Investors had been buying gold in anticipation of a pickup in inflation. With prices now falling, the attraction of the metal as an alternative investment has waned.

All kinds of interesting stuff, here. First, gold that supposed paragon of financial stability, fell 13% in just two days. Some stability!

Second, consider all the debt-hawk hand-wringing that the federal debt is “unsustainable.” Those deluded folks say federal money “printing” is causing inflation or even hyper-inflation. They compare the U.S. with Zimbabwe and the Weimar Republic, which resemble the U.S. the way the moon resembles green cheese, i.e. not at all.

All this while the real danger is deflation.

The gold market was also rattled by a proposal last week that Cyprus sell some of its gold reserves to support its banks. Traders worry that Spain, Italy and other weak European countries might follow suit, flooding the market with excess supply just as demand for the metal is weakening.

The euro nations very well might sell gold in order to pay bills. Having given up the single most valuable asset they have — their Monetary Sovereignty — they have run short of euros.

Unlike the U.S., which can create unlimited numbers of its sovereign currency, the dollar, the euro nations have no sovereign currency at all. They chose to become monetarily non-sovereign, putting them on a par with our struggling states, counties and cities.

Gold peaked at $1,900 an ounce in September 2011 during the market turmoil that followed a downgrade to the U.S. government’s credit rating.

The credit agencies (those same guys who gave top ratings to worthless debt instruments) downgraded the U.S., a Monetarily Sovereign nation with the unlimited ability to pay any bills of any size. But they didn’t downgrade euro nations, whose bill-paying ability is limited. This is what passes for fiscal prudence in today’s financial world.

Gold has been declining from a recent high of $1,792 on Oct. 4 as the outlook for the U.S. economy improved, diminishing the metal’s appeal as a safe haven investment.

And pray tell, what is the definition of a “bubble”? (A useless product, whose price has been bid up by fools, hoping to sell it to bigger fools.)

Some Federal Reserve officials have also been calling for an early end to the central bank’s bond-buying program [Quantitative Easing]. If that happens, it would likely cause U.S. interest rates to rise, resulting in an appreciation of the U.S. dollar. That gives traders another reason to sell gold, since they see the metal as an alternative to holding dollars.

The U.S. is sovereign over its currency, and sovereign means total control. It can create as many dollars (by spending) or destroy as many dollars (by taxing) as it wishes.

The U.S. also can set dollar interest rates at any level it wishes. This doesn’t even require an end to QE. It simply could be done by fiat, i.e by charging banks more for reserves. Dollar interest rates are not derivatived from supply and demand; they are set.

Meanwhile, gold bugs tremble in panic their supposedly “safe harbor investment,” sitting in a vault somewhere, costing storage fees every month, is crashing, while “dangerous” dollars earn interest every month.

In all fairness, the price of gold has risen about 50% in the past five years, earning a nice profit for those who bought low and sold high. But wasn’t gold supposed to be non-speculative? Wasn’t that the whole point?

Anyway, a friend of mine actually made a profit on Beanie Babies. That’s the way it is with bubbles.

Rodger Malcolm Mitchell
Monetary Sovereignty

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

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