–Italy tries to grow its economy by taking money from its economy. Huh? U.S. debt hawks do the same.

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity 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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As you read this article, remember this equation. It’s a fundamental equation in economics: Gross DOMESTIC Product = Federal Spending + Private Investment and Consumption + Net exports. This formula tells you a domestic economy (GDP) cannot grow unless the domestic money supply grows. That’s simple math.

New York Times
Italy Tries Raising the Social Stigma on Tax Evaders
By Rachel Donadio and Elisabetta Povoledo

ROME — On a recent morning, Maurizio Compagnone, an employee of Italy’s internal revenue service, stood before a classroom of middle school students in a leafy neighborhood here, preaching the virtues of paying taxes.
[…]
Mr. Compagnone is one soldier in a battle — often uphill — to persuade Italy’s famously tax-evading citizens to pay up. Such efforts, along with a new blitz of public service announcements trying to raise the social stigma on tax evasion, have become crucial as Italy struggles to reduce its $2.5 trillion public debt and fend off speculative attacks.

The tax authorities say Italy loses an estimated $150 billion a year in undeclared revenues, while the national statistics authority places the underground economy to be about 17.5 percent of gross domestic product — the third highest in Western Europe after Malta and Greece but before Spain. Other experts place the percentage much higher.

To tackle the issue, Prime Minister Mario Monti’s new $40 billion austerity package, which received final approval on Thursday in the Senate, includes tougher measures that will allow tax officials to peer into Italians’ bank accounts to check declared income against bank deposits — not to mention yacht, car and home ownership — under a new cross-referencing initiative.

Italy is a monetarily non-sovereign nation. It uses the euro, over which it has no control. The statement, “Italy loses an estimated $150 billion a year in undeclared revenues. . .,” is incorrect. When Italians pay taxes, euros flow from the private sector to the public sector. But Italy, as a nation, neither gains nor loses euros.

Remember, Italy’s GDP = Federal Spending + Private Investment and Consumption + Net exports. To grow the economy, it is necessary to increase overall spending, which requires adding to the money supply. Sending money from the private sector to the public sector does not increase GDP.

A Monetarily Sovereign nation easily is able to increase GDP, i.e. increase overall spending, via increases in government deficit spending, which increases the supply of its sovereign currency. Italy (and indeed all monetarily non-sovereign governments) has no way to increase its supply of currency other than by increasing exports.

Increasing government tax collections may temporarily help solve government debt problems, but it impoverishes the private sector. Austerity = poverty.

Many Italians approach tax evasion with true delight, taking pride in outsmarting the system, aided by books sold online and by Italy’s 113,000 tax accountants. Many Italians say rule-breaking is a question of survival. “When I first opened my restaurant, my accountant sat me down and told me that if I wanted to pay all my taxes, I might as well close up shop immediately,” said Giuseppe, a restaurant owner in Rome who said he was a basically honest person who had been “forced to evade taxes” because of Italy’s costly fiscal system.

The above is a succinct statement of the problem for monetarily non-sovereign governments. They cannot survive long term without having money come in from outside their borders or by impoverishing their own citizens.

Business associations have urged the (Italian) government to reduce the tax burden for companies and workers and raise it on assets. This month, the governor of the Bank of Italy, Ignazio Visco, said that Italy’s tax burden had risen to 45 percent over all and called for urgent reforms to help lower it.

Visualize a group of starving people locked in a room with 1 lb. of food. The Italian “solution” is to move the food from one side of the room to the other. No matter how many times they move the food, there still isn’t enough food. Collect more taxes and there still won’t be enough euros in Italy.

Massimiliano D’Angeli, a criminal defense lawyer, said he believed that if more services like those provided by lawyers, plumbers and electricians were tax deductible rather than subject to the nation’s 23 percent value-added tax, people would have an incentive to ask for receipts. Instead, many workers and professionals offer a “VAT (Value Added Tax) discount” for payment under the table.

In spite of Mr. Monti’s approval ratings, there is widespread skepticism that the anti-evasion measures will work. Asked why Italy had had so much trouble cracking down on evasion, Bruno Tinti, a former prosecutor turned journalist specializing in the black economy, had a simple answer: “Tax evaders vote, that’s the problem.”

VAT is a government’s desperate effort to collect take money out of the private sector, with the least appearance of a tax increase. Like most taxes, it hits the lower income classes heaviest, because they spend proportionately more on taxable goods and services, while the upper classes spend more on investment products.

The euro nations’ problem is not that of tax collection. It is a very simple truth: GDP growth requires money growth, and taxing does not grow the domestic money supply. Period.

There are but two methods for growing the money supply:

1. Be a net exporter, which all nations cannot do, simultaneously
or
2. Central government deficit spending, which monetarily non-sovereign nations are unable to do for very long.

This is a lesson the deficit-cutters in America have not yet learned. GDP growth requires domestic money growth, which requires federal deficit spending. If you don’t grow the domestic money supply, it mathematically is not possible to grow GDP.

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

–Gee, all we wanted is to end voter fraud.

Washington Post: Justice Dept. rejects South Carolina voter ID law, calling it discriminatory
By Jerry Markon, Published: December 23

The Obama administration entered the fierce national debate over voting rights, rejecting South Carolina’s new law requiring photo identification at the polls and saying it discriminated against minority voters.

Friday’s decision by the Justice Department could heighten political tensions over eight state voter ID statutes passed this year, which critics say could hurt turnout among minorities and others who helped elect President Obama in 2008. Conservatives and other supporters say the tighter laws are needed to combat voter fraud.

Is there vote fraud? Of course there is lots of it. But it’s fraud committed by the politicians. I’m talking about gerrymandering, losing ballots, miscounting ballots, tampering with voting machines, threats against voters, accompanying voters into voting booths, inconveniently located polling places, filling out ballots for voters, closing polling places early, voting machines that “don’t work,” paying for votes and on and on. Those constitute the real fraud, none of which is prevented by poll taxes, quizzes, I.D.s and the dozens of other little schemes designed to keep the poor from voting.

In its first decision on the laws, Justice’s Civil Rights Division said South Carolina’s statute is discriminatory because its registered minority voters are nearly 20 percent more likely than whites to lack a state-issued photo ID. . . . “The absolute number of minority citizens whose exercise of the franchise could be adversely affected by the proposed requirements runs into the tens of thousands,” Assistant Attorney General Thomas E. Perez said in a letter to South Carolina officials.

This must come as a complete surprise to S.C. officials.

South Carolina Gov. Nikki Haley (R) called the decision “outrageous” and said she plans to seek “every possible option to get this terrible, clearly political decision overturned so we can protect the integrity of our electoral process and our 10th Amendment rights.”

The law, passed in May and signed by Haley, requires voters to show one of five forms of photo identification. The state can now try to get the law approved by a federal court or seek reconsideration from Justice.

South Carolina cited the need to fight voter fraud in defending the measure. Whether election fraud exists to any significant degree and how extensive it may be is the subject of a divisive national debate. Some conservatives have long argued that fraud is a serious problem, but Perez said that South Carolina’s submission “did not include any evidence or instance” of fraud not already addressed by state laws.
[…]
The voter-identification measures, enacted mostly by Republican legislatures, also impose restrictions on early voting and make it harder for former felons to vote. One study estimated that the changes could keep more than 5 million voters from the polls. But the laws have proven popular, according to some surveys. Last month, Mississippi voters easily approved an initiative requiring a government-issued photo ID at the polls.

What? Republicans voting for a law hurting the poor? Mississippi and South Carolina voting against blacks? Hmmm . . .

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

#MONETARY SOVEREIGNTY

–Why federal debt is not debt, and federal borrowing is not borrowing

On June 20th, 2011, this blog published a post titled “Why a dollar bill is not a dollar, and other economic craziness.” I hope you had a chance to read it, because it is something of a prelude to today’s post.

Monetary Sovereignty is dead simple. It can be expressed in one short sentence: A Monetarily Sovereign government has the unlimited ability to create its sovereign currency. That’s it. Everything else derives from that.

Many people find Monetary Sovereignty to be counter-intuitive, because some seemingly identical words mean different things, depending on whether they reference Monetarily Sovereign entities or monetarily non-sovereign entities.

If I told you a man has made a lot of “hits,” your understanding of that phrase would depend on whether I was talking about baseball or organized crime. There is no relationship between a baseball hit and a crime hit.

Similarly, the words “debt,” “owe,” “borrow,” and “lend” have totally different meanings, depending on whether you’re talking about the federal government or an individual person. Unfortunately, this difference often is not recognized by the media, the politicians or even by old-line economists.

Imagine you are the only person in the world and your bank is the only bank in the world. Your checking account has a balance of $1,000, which represents all the dollars in the world. For whatever reason, you now wish to borrow $2,000 from your bank. Can you do it?

Yes, if your bank has a 20% fractional reserve lending limitation, it can lend up to $5,000, in a series of steps described at Fractional Reserve Banking.

Where will the bank get that $2,000? From nowhere. Money does not exist in any physical form. All your money – all anyone’s money – is just numbers on a bank statement. Changing those numbers changes the amount of money you own. When a bank lends money, it creates those dollars, by marking up checking accounts. Personal borrowing creates dollars.

Then, when you pay down the loan, you destroy the dollars your bank previously created.

Contrast that with the way our federal government “borrows,” i.e. creates “debt.” Federal “debt” is nothing more than the total of all outstanding Treasury securities, among which are T-bills, T-notes and T-bonds.

Anyone can “lend” to the federal government. If you wish to lend $1,000 to the government, you purchase a T-bill. The process is this: First, you deposit $1,000 in your checking account, i.e. your bank marks up the numbers in your checking account by one thousand. Then, the federal government instructs your bank to mark down the numbers in your checking account by one thousand, while simultaneously marking up the numbers in your T-bill account by one thousand (ignoring, for the sake of illustration, interest).

The simultaneous mark down of your checking account and markup of your T-bill account creates no new dollars. “Lending” to the federal government does not create dollars. And when the government pays down its “debt,” no dollars are destroyed. The whole process is an equal exchange.

[Banks create dollars by lending, and dollars are destroyed when these loans are paid down. The federal government does not create or destroy dollars by borrowing. It creates dollars by spending and it destroys dollars by taxing.]

In summary, the words “debt,” “owe,” “borrow,” and “lend,” when describing personal (monetarily non-sovereign) finances, involve the creation and destruction of money. Those identical words, when describing federal finances, involve nothing more than an equal exchange. No money is created or destroyed.

Just as saying a man has a lot of hits to his credit can give an entirely wrong impression, saying the government has a lot of “debt” or “owes” a great deal, gives the wrong impression. The words are wrong. Federal debt is not debt as we commonly think of the word.

A crime “hit” really should be called “murder,” to differentiate it from a baseball hit. So should federal “debt,” “owe,” “borrow,” and “lend,” be changed to differentiate them from personal “debt,” “owe,” “borrow,” and “lend.”

You may have some thoughts on this, but my suggestions are:

Debt (of the federal government): Total T-securities outstanding
Owe (by the federal governemnt): Has T-securities outstanding
Borrow (by the federal government): Sell T-securities
Lend (to the federal government): Buy T-securities or, exchange dollars for T-securities
Pay down (federal T-securities): Exchange dollars for T-securities

Yes, I know this never will happen. But perhaps thinking of things in those terms will help people better understand Monetary Sovereignty, and why federal “borrowing is not a burden on us or our children, nor is it a threat to, or an imprudence by, the federal government. It’s just an equal exchange, that no longer is financially necessary.

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

#MONETARY SOVEREIGNTY

–The tax cut that wasn’t and the tax increase that was.

How do you empty a lake? One drop at a time:

Chicago Tribune: Mass transit commuters’ tax breaks falling
Next year, federal rules will shield only $125 a month from taxes
By Jon Hilkevitch and Richard Wronski, December 23, 2011

The amount of income that commuters who use mass transit will be eligible to shelter from taxes to pay their fares drops on Jan. 1 to $125 a month from the current $230 a month, while the tax-free parking benefit for drivers will increase from $230 to $240 a month, officials said Thursday.

The steep reduction in the transit provision is due to Congress’ failure to renew the higher limit in the Commuter Benefits Equity Act</strong, officials said, adding that they are hopeful lawmakers will approve a higher limit sometime in 2012.

Regional Transportation Authority Executive Director Joseph Costello called the pending cut in pre-tax transit benefit dollars “a clear inequity that is not good for our cities.”

The cut in benefits will have a similar effect as a fare increase because riders whose employers participate in the transit benefits program will only be able to shield a maximum of $1,500 in income from taxes in 2012, down from $2,760 this year.

Actually – a worse effect. A fare increase would circulate dollars within the economy. But reducing tax breaks sends more dollars to the federal government, where they are destroyed.

Drip, drip drip. Remember (it happened only yesterday) how Congress “saved” salaried taxpayers an average of $1,000 per year by renewing the 4.2% level for FICA tax collections. Notice, this highly publicized action did nothing. It wasn’t a tax cut. It merely continued the current tax level for another (whoopie!) two months. Nothing really changed.

What did change is, now they take about $225 a year from commuters’ pockets, and hardly anyone notices. So on balance, after all the smoke has settled, commuters will be a drop poorer.

The transit benefit is intended to serve as an incentive to ride trains and buses instead of driving.

But who cares about energy saving and the ecology, when the real debt-hawk concern is the inflation that federal deficit spending (aka “money printing”) supposedly causes? I refer to the currently “outrageous” 2% inflation caused by the massive federal spending of the past few years.

Listen to the politicians and the media, and you’ll be convinced not just inflation, but hyperinflation, is just around the corner, if we don’t become “financially prudent,” meaning, cut benefits to the less affluent 99%. And pay no attention to the man behind the curtain, who denies the undeniable fact that for 40 years, there has been no relationship between federal deficit spending and inflation.

Each day, drip, drip, drip, the federal government empties the lake, urged on by the Tea/Republicans, the media and even by some Democrats. And whose lake does it empty? The poor- and middle-classes’s, who already live on parched land.

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

#MONETARY SOVEREIGNTY

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