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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The 2008 explosion of the real estate bubble cost America vast amounts of money, which loss caused the “great recession.” Scientific logic and historical precedent show that recovery from the current recession demands increased deficit growth.

But based on all the non-factual, faith-based beliefs being preached, these are not scientific times. Now comes Michael Sivy, who tells us money growth is dangerous.

First, a bit about Mr. Sivy:
Michael Sivy is a Chartered Financial Analyst and a former securities analyst for an independent stock research firm. He was an investment columnist at Money for more than 23 years as well as a guest columnist for TIME’s international edition. Sivy has appeared as a stock-market commentator on television, including the networks ABC, CBS, NBC, Fox, CNBC, CNN and MSNBC. In addition, he has been heard on NPR’s All Things Considered, PRI’s Marketplace and on the CBS Radio network. He is the author of Michael Sivy’s Rules of Investing: How to Pick Stocks Like a Pro. Born in Manhattan, Sivy holds B.A. and M.A. degrees in classics from Columbia University, and studied theology at Oxford University and Yale Divinity School.

Time Magazine: Are We Already Planting the Seeds of the Next Financial Crisis?

Central banks are trying to revive weak economies by injecting large amounts of money. That policy helps in the short run, but easy money can also create the conditions for future booms and busts.
By Michael Sivy, February 13, 2012

The wreckage of the housing bubble and the banking crisis haven’t yet been cleared away completely, but already there are hints of renewed speculation – warning signs of a problem that often arises when central banks try to bolster weak economies.

Expanding the amount of money in circulation is, of course, beneficial in the short run because it stimulates business activity and takes some of the pressure off overextended borrowers and banks.

Federal deficit spending also is beneficial in the medium run and the long run. Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports. It’s not clear how expanding the money supply “takes pressure off overextended borrowers.” Perhaps it’s just a matter of faith.

But easy money also encourages risk-taking and temporarily pushes the prices of safe investments up to unsustainable levels, thereby creating the potential for future financial crises.

Note the subtle shift from “Expanding the amount of money in circulation” to “easy money.” The former simply has to do with the quantity of money; the later relates to interest rates — two different circumstances. Mr. Sivy seems not to be concerned with the difference.

This problem last occurred – with catastrophic results – in the years following the 2000 technology stock crash, when Federal Reserve Chairman Alan Greenspan repeatedly stoked the money supply. That did help revive the U.S. economy, but it also fueled a bubble in home prices that contributed greatly to the 2008 banking crisis.

Increased money supply caused the bubble in home prices? Huh? I wonder why the increased money supply of the 1980’s didn’t cause a real estate crash. Innocent me, I thought the 2008 crash was caused by bad lending practices against insufficient collateral.

Is current Fed Chairman Ben Bernanke . . . risking future bubbles because he is trying to compensate for a past one? . . . Bernanke has bluntly announced that he will hold down interest rates close to zero until 2014. That may be intended as a confidence-building measure, but it will also make speculators feel more secure. Consider these signs of a growing appetite for risk:

Aggressive investments are becoming more popular. Low interest rates are making investors take greater risks in the search for yield. Sales of junk bonds picked up in January, and February looks strong as well, with billion-dollar-plus offerings by casino owner Caesars Entertainment and hospital operator HCA.

O.K., so he is talking about interest rates and not about money supply. Hard to keep track. Anyway, he is correct that low interest rates do nothing positive for the economy. They make borrowing more attractive, but lending less attractive, and more importantly, cause the federal government to pump less interest money into the economy. Historically, low interest rates have corresponded with slower GDP growth.

Safe investments have enjoyed big price gains recently.

Whoa! First it was “Aggressive investments are becoming more popular.” Now it’s “safe investments enjoying big price gains.” So, what he’s saying is, prices of all investments are rising. What a revelation: Prices rise coming out of a recession. Who’d a thunk?

Anyway, the article continued, again confusing money supply with interest rates, correctly denouncing the Fed’s low-rate policy, and incorrectly denouncing increases in the money supply.

Terminology has been the undoing of economics. “Debt” and “deficit” continue to confuse the politicians, the media, the public and even the old-line economists, for these words mean something substantially different when applied to the Monetarily Sovereign U.S. government vs. monetarily non-sovereign entities.

“Easy money” is another example, in that the term combines low interest rates with increased money supply, either of which may occur without the other. The federal government can lower rates without increasing the money supply, simply by spending less. Or it can increase the money supply without lowering rates, by spending more.

Mr. Sivy, like so many in the media, is confused, and this confusion confuses the public. He is right about interest rates, wrong about money supply, and seemingly doesn’t understand the difference. His criticism of Bernanke is as though he is saying, “God has created too much water because people drown in it.”

Bottom line: Money growth is stimulative, low interest rates are anti-stimulative, and Mr. Sivy’s divinity studies may be perfect for today’s faith-based, proof-lacking economics, where the economists and the media are the high priests, and their prestige trumps data.

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

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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.
==========================================================================================================================================

Paul Krugman coined the term “confidence fairy,” to describe the Tea/Republican belief that cutting spending will create jobs by restoring business confidence. Of course, that belief is nonsense. Confidence is a short-term emotion, that doesn’t stimulate the economy; in contrast a stimulated economy creates confidence. All the confidence in the world can’t replace money as the way to grow GDP.

Yesterday’s Yahoo News posted an article titled, “Greece’s grim choice: deep budget cuts or default,” By Christina Rexrode and Paul Wiseman | Associated Press. The article discussed the pros and cons of austerity vs. leaving the euro.

More than 10 years ago, I predicted the euro would prove to be a huge mistake, because euro nations were forced to surrender the single most valuable asset any government can have: Monetary Sovereignty. More valuable than all the land, more valuable than all the buildings, monuments, bridges, dams – even more valuable than (dare I say this?) the citizens themselves, Monetary Sovereignty gives a government the ability to buy anything it wishes, pay any bill at any time, and never go bankrupt.

For that reason, I have suggested Greece should leave the euro and re-adopt the drachma, thus returning to Monetary Sovereignty. Here is what the article said about that:

The pros:
Dropping the euro would leave Greece with a much cheaper currency, its own drachma. That would juice Greece’s economy by making Greek products less expensive around the world. This would give Greek exporters a competitive edge.

In the 1990s, Canada used a weak currency to expand exports and grow its way out of high government debts . . . As long as it’s shackled to the euro, Greece lacks that option.

Exports increase the domestic money supply. As Canada was, and is, Monetarily Sovereign, it could have expanded its money supply, regardless of exports. The Canadian government, being as clueless about Monetary Sovereignty as is the U.S. government, wrongly thought more exports were necessary.

Bernard Baumohl, chief global economist at the Economic Outlook Group, (says)”What is worse for Europe — to have this matter linger on and on, with European citizens having to continue to bail out Greece and Portugal? Or to face the reality that these countries should not have joined the euro in the first place?”

No country ever should surrender its Monetary Sovereignty, so no country, not even Germany, should have joined the euro.

The cons:
Exiting the euro would throw Greece’s banking system into chaos. Lenders would panic over the prospect of being repaid not in euros but in drachmas of dubious value. Adopting a suddenly much weaker currency could also ignite Greek inflation because prices of imported goods would soar.

Here comes to the panic genie, that mythical creature, which once let out of the bottle, would destroy Greece’s economy – according to the authors. In reality, the banking system would not go into chaos, and if any lenders panicked, their terror would be short-lived. Uncertainty causes panic, and if ever Greece’s lenders should be panicked, it’s now, not when certainty has been established.

The lenders would be told, “All debts will be paid in drachmas at the rate of one drachma per euro.” Any panic would begin and end on the same day.

And as for inflation – the debt hawks’ eternal bugaboo — it easily could be controlled by the simple expedient of raising interest rates on Greek debt. How does that fight inflation? High rates create demand for Greek bonds, and the only way to buy Greek bonds would be to obtain drachmas. Increased demand for drachmas would increase the value of drachmas. Stronger drachmas would make imports less costly.

International investors would be reluctant to lend to Greece’s government, its companies or its banks. The freeze-up in credit could cause a depression, worse than what Greece is suffering now. Economists at UBS estimate that Greece’s economy would shrink by up to 50 percent if it left the eurozone.

International investors would love to receive high interest by lending to Greece’s government, its companies and banks. In fact, the surety of a Monetarily Sovereign Greece and its remunerative drachma bonds, compared to the edge-of-cliff uncertainty about the euro, would make lending to Greece an attractive investment.

The pain would also likely spread as European banks absorbed losses on their loans to Greece. The worst-case scenario: A disaster akin to what followed Lehman Brothers’ collapse in September 2008. Banks grew too fearful to lend to each other. Credit froze worldwide.

Nonsense. Blaming the credit freeze on Lehman Brothers is like blaming cold weather on an ice cream cone. The sudden loss of trillions in real estate wealth, had far more to do with the credit problems than comparatively piddling Lehman.

Once again, we see the panic genie at work – the upside-down belief that panic creates the economy rather than the economy creating the panic. Panic, like all emotions, is a short-term phenomenon. When Nixon ended the gold standard, panic ensued. It was termed the “Nixon shock.” Panic ended within days, the world kept turning, and the U.S. became stronger than ever. The ensuing growth of GDP was interrupted only when federal deficit growth fell, which by the way, Tea/Republicans, did not stimulate the economy.

Some economists would like to see European governments produce a rescue package that pairs government cuts and reforms with economic aid designed to spur growth in Greece.

Please do not use the terms “government cuts” and “spur growth” in the same sentence. They are mutually exclusive.

“When you have over 20 percent unemployment, you need to do something,” Papadimitriou says. He wants European countries to propose something like the U.S. aid plan that rescued an impoverished Europe after World War II. “You need something similar to the Marshall Plan,” Papadimitriou says.

He’s right – and wrong. The euro nations need more money, just as the Marshall Plan provided, but they don’t need the U.S. to supply it. The Monetarily Sovereign EU could, and should supply it themselves. That would be the alternative to Greece et al leaving the euro.

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