Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Here are some excerpts from an article in the Washington Post:

Read the first paragraph and decide what is the bad news:

Health-care law will add $340 billion to deficit, new study finds
By Lori Montgomery

President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing.

No, the bad news is not that the law will add $340 to the deficit. That’s the good news. The bad news is that this is described as “budget woes.” Ms. Montgomery does not understand Monetary Sovereignty, so as a result, does not understand economics.

The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers.

No, the conventional wisdom is that federal financing is similar to personal financing, where deficits are bad and surpluses are good. But the federal financing is the opposite of personal financing. The former is Monetarily Sovereign, while the later is monetarily non-sovereign.

Ms. Montgomery, do you see the difference between “sovereign” and non-sovereign? They are opposites.

For instance, when the federal government runs a deficit, the economy runs a surplus. And, when you pay taxes to cut the deficit, that increases the economy’s deficit. This simple fact gives you a choice:

1. The government, which has the unlimited ability to create dollars, and never can run short of dollars, can run a deficit
or
2. The economy, which is short of dollars, can run a deficit.

Which do you prefer?

The 2010 law does generate both savings and revenue. But much of that money will flow into the Medicare hospitalization trust fund — and, under law, the money must be used to pay years of additional benefits to those who are already insured.

To demonstrate the ignorance of the conventional wisdom, consider this. Lori Montgomery actually believed it was possible to insure an 30 million more people, and additionally “pay years of additional benefits to those who are already insured – while reducing the cost!

And she, and the rest of conventional wisdom, now complain they were fooled?!!

“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said.

It “worsens” the federal deficit, meaning it improves the private economy’s finances (“Private,” meaning you and me). Remember: Federal Deficits – Net Imports = Net Private Savings. If deficits go down, private savings go down. This is a law of economics.

Medicare is financed in part through a trust fund that receives revenue from payroll taxes.

Here comes accounting voodoo. If there were no payroll taxes, and no trust fund, the federal government would continue to do exactly what it does now: Pay bills by crediting the checking accounts of hospitals, doctors and pharmaceutical companies. Absolutely nothing would change.

Before Obama’s health-care act passed, the trust fund was projected to be drained by 2017 (later updated to 2016).

More accounting voodoo. The so-called trust fund is an accounting fiction that does not exist in the real world. Those checks to doctors come from the Treasury. The checks are instructions to doctors’ banks, telling the banks to increase the doctors’ checking accounts. The Treasury can send these instructions, endlessly, and banks will obey, endlessly. That’s how dollars are created.

“This isn’t just a persnickety point about the intricacies of budget law,” Blahous said. “If Medicare were going insolvent in 2016, you’d better believe right now there would be more pressure on lawmakers to do something about it. . . . It’s essential that there be a full public understanding of the most economically significant federal law in years.”

Amen to that, brother. It is absolutely essential that there be a full public understanding of the realities of federal financing, i.e. Monetary Sovereignty. Medicare is a federal agency. The federal government, being Monetarily Sovereign, never can be insolvent, so none of its agencies can be insolvent.

I award Lori Montgomery three dunce caps (My memory says she already has received some, so perhaps she is a professional collector.)

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

==========================================================================================================================================
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 exports

#MONETARY SOVEREIGNTY

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Monetarily non-sovereign entities (including states, local governments, businesses, the euro nations, you and me) cannot survive long-term without a positive balance of payments, i.e., more money coming in from outside their borders, than leaving.

The reason: Our Monetarily Sovereign government pays bills by creating dollars; you and I pay bills by transferring dollars — and that makes all the difference.

Let’s begin with you and me. To spend, we need income. We cannot create dollars, other than by borrowing. So, short term, we can survive without income, but long term we cannot. We have to pay back those loans.

The same is true for businesses. Long term survival depends on income exceeding expenditures.

And the same is true for state and local governments. Taxes aren’t income for a state; taxes merely are circulation of dollars within the state. A monetarily non-sovereign government cannot survive long term on taxes. It needs a positive balance of payments; dollars coming in (via exports or other payments) must exceed dollars going out. Borrowing provides temporary income, but loans must be repaid — along with interest.

The euro nations suffer the same problem. They cannot create a sovereign currency. Those that are net exporters survive; the others rely on borrowing, which merely buries them deeper.

I mention all this because of an editorial in today’s Chicago Tribune, titled, “Saving Medicaid.” According to Medicaid.gov, “Medicaid and CHIP Provide Health Coverage to nearly 60 million Americans”

Here are excerpts from the Tribune editorial:

Gov. Pat Quinn has called for $2.7 billion in Medicaid cuts in next year’s budget.

The Medicaid cuts will be painful for health care providers and the 2.7 million people who depend on the program. Absent a huge downsizing, however, the state Medicaid program will capsize. The state expects to have about $1.9 billion in unpaid Medicaid bills on hand at the end of fiscal 2012. Without a fix, that backlog will balloon to $21 billion in just five years.

“Unpaid Medicaid bills” mean doctors, hospitals, nurses and pharmacies are not being paid. They are paying for the state’s insolvency. One way a monetarily non-sovereign entity can delay insolvency is to cut expenses, particularly expenses that send dollars out across the border. This is a temporary hold, however. As dollars continue to flow out, repeated cuts become necessary.

One major reason for Medicaid’s faltering health: From 2000 to 2011, the number of people receiving Medicaid services in Illinois doubled. Federal law will land hundreds of thousands more people on the state’s Medicaid rolls starting in 2014 and strictly limits the state’s ability to tighten eligibility requirements.

The financial need grows, but the federal government tells the states whom they must pay.

Two overarching changes are needed to start to save Medicaid:

• Stop services for people who simply don’t qualify. Some recipients don’t even live in the state.

Payments to out-of-staters are particularly damaging.

Some make too much money to get health care designated for the poor. An estimated 100,000 to 300,000 people can be removed, saving $100 million to $700 million a year.

The government says, “Children in families with incomes up to $44,100 per year (for a family of four) are likely to be eligible for Medicaid coverage . . . Covers people with disabilities, people with incomes up to $1,868; many states go to $10,890 Federal Poverty Level. . . Beginning on January 1, 2014, adults under age 65 with family incomes up to $14,484 will be eligible for Medicaid.”

Summary: Medicaid takes care of those below the Federal Poverty Level. But who are those 100,000 to 300,000 people Illinois wishes to remove from the rolls? Are they wealthy, or are they simply not poor enough?

* Speed the switch to managed care to save money and improve quality of care. Managed care generally means patients are assigned a “medical home” — a doctor who oversees their care.

Translation: Put the financing onus on doctors and hospitals.

Beyond that, program cuts and eligibility changes will be necessary. Setting lower income eligibility on adult coverage in Family Care would save almost $50 million.

Translation: Eliminate those at the upper end of poverty — though still impoverished.

Prescription drug coverage costs Medicaid $814 million a year. Eliminating that wouldn’t be wise because many drugs help control chronic conditions and prevent expensive hospital stays. But drug coverage can be prudently trimmed. If Medicaid recipients were limited to five prescriptions a month, the program would save a whopping $136 million.

Translation: Make sure your health problems don’t require more than five prescriptions a month. This means the sickest people will be penalized most.

Possibly on the block: Illinois Cares Rx, a supplemental drug program for seniors that doesn’t draw federal reimbursement. It costs $72 million a year.

Translation: Who cares about poor seniors? They’ll die soon, anyway.

There’s lots more on the table, such as hospice care (about $89 million)

Translation: People on hospice don’t vote.

Adult dental care ($51 million); durable medical services and supplies such as wheelchairs and ventilators ($150 million); adult speech, hearing and language therapy ($411,000); podiatric services ($5.8 million); bariatric surgery ($8.4 million); group psychotherapy for nursing home residents ($14 million); even therapy for refugees who were torture victims in their native countries ($133,000).

Translation: We don’t care if their teeth rot, they have to crawl, they can’t breath, can’t talk, can’t hear or are psychotic. They should have thought about those problems when they were youngsters.

All of that still doesn’t come close to $2.7 billion. That’s why there’s a 6 percent cut for hospitals and nursing homes in play. Savings: $550 million. Hospitals argue that the state should exhaust other options before trimming providers, who are already reimbursed at low rates. But providers likely will feel some pain. “Everybody,” the governor says, “will take a haircut.”

Translation: “Haircut” is the euphemism-du-jour for screwing. Creditors take a haircut when debtors don’t pay. In the above case, the only one that doesn’t take a haircut is the state.

Bottom line: The entire philosophy behind Medicaid — making monetarily non-sovereign states pay for some of their residents’ health care — is nuts. It would be no burden on our Monetarily Sovereign, federal government, which actually creates dollars by spending dollars, to pay for everyone’s health care.

The notion that our Monetarily Sovereign, federal government can’t afford health care, but the poor and middle class can, is beyond nuts. It’s stupid/nuts. But that is exactly what the debt-hawk, Tea/Republicans try to make the 99% believe.

Putting the burden on the states, actually puts the burden on health care providers and on the poor. The religious right will tell us that it is the fault of the poor and middle classes that they cannot afford health care. If only those people weren’t so lazy they’d get jobs that provide employer health care. And, if only they weren’t so clumsy, they wouldn’t need disability care. And if only they didn’t have so much sex, they wouldn’t need children’s health care.

The 99% are such a burden on the 1%, aren’t they? And think about it. Isn’t the federal debt a terrible burden on you, while your personal debt is no problem at all?

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

==========================================================================================================================================
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 exports

#MONETARY SOVEREIGNTY

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

Recently I published a post titled, “The 3.5 billion stealth tax,” in which I criticized the federal government for forcing, or even accepting, repayments of loans to the private sector. I correctly said these repayments were identical to a tax increase, and would have the same negative effect on economic growth.

A reader disagreed, saying,

You generally seem pragmatic, so I would think you would be happy that the banks are paying back the funds – thus addressing the argument that this was a government handout / taxpayers are paying. The next time government intervention is needed, people can point to this as evidence that it doesn’t cost the government / taxpayers anything.“

He doesn’t think my facts are wrong; he feels that because people believe the debt should be repaid, we should not try to fight that widely accepted fiction, even if it will have negative long-term effects.

The problem with accepting a fiction is it always has long term, negative effects.

It’s true that most people were led to believe some cigarettes were “safer” than others (so kept smoking these “safer” cigarettes), and today most people have been led to believe taxes pay for federal spending (so they want reduced spending). But the former wrong belief led to millions of cancer deaths, and the later wrong belief continues to put a cancer on our economy.

According to the Washington Post

Paul Ryan betrays his own views on income inequality
Posted by Ezra Klein

On Thursday, the House of Representatives passed Rep. Paul Ryan’s 2013 budget proposal. The plan’s pleased author didn’t mince words. “We are bearing witness to history this week,” Ryan said.

But my thoughts kept returning to something Ryan said five months earlier. Upward mobility, Ryan said, is the real key to the “American idea.”

Two weeks later, in a 15-page report entitled “A Deeper Look at Income Inequality,” Ryan made his argument again. He seemed to admit a hard truth that Republicans often deny: that government programs for the poor are a crucial way of ensuring income mobility, and as they get squeezed, so, too, do the life chances of those born at the base of the income ladder.

But it is difficult to believe that Ryan’s budget was written by the same guy who wrote this paper. Because in Ryan’s budget, the cuts to Medicaid and other health programs for the poor are twice the size of those to Medicare. The cuts to education, to food stamps, to transportation infrastructure and to pretty much everything else besides defense are draconian. As for the tax reform component, it cuts taxes on millionaires by more than $250,000, but it doesn’t name a single loophole or tax break that Ryan and the Republicans would close.

In short, Ryan tells the absolute falsehood that cutting taxes demands cutting federal spending, and since most federal spending benefits the poor, programs that benefit the poor must be cut. And since most people do not understand the facts of Monetary Sovereignty, I suppose I should go along with the twin fictions that federal tax cuts require spending cuts, and federal deficits should be reduced.

If that would be “pragmatic,” then I will continue to be quixotic, and do my best to spread the truth: Taxpayers do not pay for federal spending, and federal money creation (aka “the deficit”) should be increased.

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

==========================================================================================================================================
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 exports

#MONETARY SOVEREIGNTY

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

The following graph is no surprise:

When Gross Domestic Product heads down, we have a recession — but not always.
And when the National Activity Index* heads down, we have a recession — but not always — except when it dips below -0.5%.

So how about combining the two indexes and see if we can get an “always” situation, that also may be appropriate to the current situation:

If we make the indicated calculation, we find that after the graph line drops significantly below 0.0, we always seem to have a recession. Will this continue? Are we headed for a recession before there will be a recovery? I don’t know, but the data are interesting, and a bit ominous, in light of where we are now.

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

==========================================================================================================================================
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 exports

#MONETARY SOVEREIGNTY

*The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data.

The CFNAI corresponds to the index of economic activity developed by James Stock of Harvard University and Mark Watson of Princeton University in an article, “Forecasting Inflation,”(external-pdf) published in the Journal of Monetary Economics in 1999. The idea behind their approach is that there is some factor common to all of the various inflation indicators, and it is this common factor, or index, that is useful for predicting inflation. Research has found that the CFNAI provides a useful gauge on current and future economic activity and inflation in the United States.