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

As Democrats pop the bubbly, and celebrate their “victory” in the payroll tax / pipeline / doctor reimbursement skirmish, let me tell you why they lost a far bigger battle.

They had the Tea/Republicans on their knees. America clearly could see the Tea/Republican position was indefensible, politically, morally and economically. It favored the rich (no increase on taxes for the 1%), slammed the middle and poor (increase FICA), and was anti-stimulus, anti-employment and anti- common sense (reduce doctors’ pay).

In essence, the Tea/Republicans had gathered all their troops in the bottom of a well and declared war. The Democrats had but to cover the well, and those crazy right-wing debaters nobody sees every night, would have been gone.

Instead, the Democrats helped pull them up and out by agreeing to just a two-month extension of reduced FICA, agreeing to no millionaire surtax and agreeing on a fast decision on the Keystone XL pipeline. This is a victory?

In two months, FICA, surtax and pipeline once again will be on the table. The Democrat’s Champagne won’t yet have gone flat, before the skirmish will begin anew. In fact, the skirmish never will end. Call this a victory?

If recent history is a judge, the Obama Democrats probably feel a victory is anything that isn’t an outright defeat, and this wasn’t an outright defeat – only a partial defeat. So what would have been a victory? Politically, a victory is anything that will help grow the economy in advance of the 2012 elections – anything that defeats the Tea/Republicans plan to create another recession or depression, and cause voter dissatisfaction with President Obama.

The lack of a wealth surtax actually actually was a Democrat victory, though they don’t understand why. Any tax, even a tax on the 1%, is anti-stimulus, so the Democrats backed into that one. And the pipeline is yet to be resolved, though my guess is it will be approved, which will be another “backed-in” economic victory for the Dems. If anything, the pipeline will be more a plus than a minus economically, if not ecologically.

And that brings us to the payroll tax. Let’s begin with the fact that FICA is unnecessary. Worse than unnecessary, FICA is downright harmful. Contrary to popular wisdom, FICA does not pay for Social Security and it does not pay for Medicare. Like all federal taxes, it doesn’t pay for anything. It is 100% anti-stimulus, every dollar of which comes directly out of private savings.

Remember the formula: Federal Deficits – Net Imports = Net Private Savings. There is very little in America that is worse for our economy, and especially worse for working people, than FICA. Yet, the Democrat “victory” is a two month extension of a tiny decrease in a terrible, regressive tax, that should have been eliminated years ago.

O.K., presumably, this two-month extension will lead to a 1-year extension – enough to help the economy prior to November, but gee whiz, is this the best the Democrats could get today? A two-month extension of a tiny decrease?

As long as the Tea/Republicans were on their butts, revealed as anti-growth, anti middle-class, anti-poor and pro wealth-gap, the Dems should have demanded some real concessions. For instance:

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. Free 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 by $10,000, annually
9. Increase federal spending on the myriad initiatives that benefit America

Begin to institute #1-#9 today, in the order shown. That would grow our economy and guarantee Democrats the White House and Congress. Oh, worried about spending causing inflation? Though for the past 40 years there has been https://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/ no relationship between federal deficit spending and inflation, if/when excessive inflation did begin, we would institute the first inflation-fighting program the Fed successfully uses: Raise interest rates.

Now that would be a victory – for the poor, for the middle, even for the rich, for the Democrats and for America.

No Democrat Champagne today. A bottle of warm beer will do.

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: 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.
==========================================================================================================================================

Over the years, the ultimate rich man’s newspaper, the Wall Street Journal, has demonstrated or feigned total ignorance of Monetary Sovereignty, and repeatedly has spread the myth of fiscal “prudence,” aka “government finances are like personal finances.”

I say “feigned,” because the myth enables lawmakers to cut middle- and lower-income class benefits like Medicare, Medicaid, Social Security, housing, aid to the poor, etc. So one wonders whether the WSJ editors are ignorant or clever when espousing their nonsense.

In either event, WSJ now laments the petard upon which the Republicans have hung themselves. In the previous post, I discussed how the Grand Old Party had sold its soul to the Misinformed New Party, the Tea Party. Here is the WSJ take on this sad, hilarious situation:

Wall Street Journal The GOP’s Payroll Tax Fiasco
How did Republicans manage to lose the tax issue to Obama?
By Felicia Sonmez

GOP Senate leader Mitch McConnell famously said a year ago that his main task in the 112th Congress was to make sure that President Obama would not be re-elected.

That tells you all you need to know about the Tea/Republicans. Curing the recession, reducing unemployment and helping those without health insurance simply were not on the agenda. Only power mattered.

Given how he and House Speaker John Boehner have handled the payroll tax debate, we wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest.

The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass. This is no easy double play.

It’s an easy double play when you try to position yourself as anti-deficit-spending and pro-voter, when 99% of the all voters rely in some way on federal deficit spending. Think of what happens when you straddle a fence and slip.

Republicans have also achieved the small miracle of letting Mr. Obama position himself as an election-year tax cutter, although he’s spent most of his Presidency promoting tax increases and he would hit the economy with one of the largest tax increases ever in 2013. This should be impossible.

Right. Obama is ignorant of economics, but the Tea/Republicans have proved even more ignorant.

House Republicans yesterday voted down the Senate’s two-month extension of the two-percentage-point payroll tax holiday to 4.2% from 6.2%. They say the short extension makes no economic sense, but then neither does a one-year extension. No employer is going to hire a worker based on such a small and temporary decrease in employment costs, as this year’s tax holiday has demonstrated. The entire exercise is political, but Republicans have thoroughly botched the politics.

WSJ misses the entire point — or points:

Point 1: The economic sense is not one of employment but of money supply. Not collecting the tax leaves more money in consumers’ pockets, which is stimulative.

Point 2: Yes, the exercise is political, but when your sole goal is to win the Presidency — and your strategy is to extend and worsen the recession, and make life as miserable as possible for voters — what can you expect but a political exercise?

Their first mistake was adopting the President’s language that he is proposing a tax cut rather than calling it a temporary tax holiday. People will understand the difference—and discount the benefit.

These are the same guys who derided Obama’s inclusion of military savings from the end of the Iraq occupation, as not really a savings but rather some sort of fakery.

Republicans also failed to put together a unified House and Senate strategy. . . . Senate Republicans say Mr. Boehner had signed off on the two-month extension, but House Members revolted over the weekend and so the Speaker flipped within 24 hours.
[…]
If Republicans didn’t want to extend the payroll tax cut on the merits, then they should have put together a strategy and the arguments for defeating it and explained why. But if they knew they would eventually pass it, as most of them surely believed, then they had one of two choices. Either pass it quickly and at least take some political credit for it.

How cynical can you get? If they wanted to call it a “temporary tax holiday,” how could they pass it? And therein lies the problem. What is the strategy that cuts benefits for the 99%, defends tax benefits for the 1%, and pretends not to do either?

Or agree on a strategy to get something in return for passing it, which would mean focusing on a couple of popular policies that would put Mr. Obama and Democrats on the political spot. They finally did that last week by attaching a provision that requires Mr. Obama to make a decision on the Keystone XL pipeline within 60 days, and the President grumbled but has agreed to sign it.

Or, heaven forbid, a strategy of reducing unemployment and stimulating the economy. But of course, that is exactly what the Tea/Republicans don’t want in advance of the 2012 elections. It would make Obama look good. Better to have us sink into depression, so you can blame Obama. To hell with human suffering. Right?

One reason for the revolt of House backbenchers is the accumulated frustration over a year of political disappointment. Their high point was the Paul Ryan budget in the spring that set the terms of debate and forced Mr. Obama to adopt at least the rhetoric of budget reform and spending cuts.

Notice how WSJ makes no mention of benefits for America. Their lament is wholly about how to fool the voters, with political tricks.

But then Messrs. Boehner and McConnell were gulled into going behind closed doors with the President, who dragged out negotiations and later emerged to sandbag them with his blame-the-GOP and soak-the-rich re-election strategy.

Hmmm . . . Eliminating the Bush tax cut for the rich is “soak-the-rich,” but eliminating the FICA tax cut for workers is a getting rid of a “temporary tax holiday”? What with causing all those federal workers to lose their jobs or accept a wage freeze, shall we call the Tea/Republican strategy “soak the poor”?

At this stage, Republicans would do best to cut their losses and find a way to extend the payroll holiday quickly. Then go home and return in January with a united House-Senate strategy that forces Democrats to make specific policy choices that highlight the differences between the parties on spending, taxes and regulation.

O.K., I get it. The FICA reduction isn’t a “temporary tax holiday” after all. It’s a political strategy. And the idea is not to benefit America, but to force Democrats to make specific policy choices (as opposed to the Republicans making specific policy choices.)

I award the WSJ two traitor images, for their incredibly cynical approach to politics. At some point, one would have hoped the phrase “good for America” or “good for the working person” or “good for taxpayers” would have found room in the article.

But, it never even occurred to them.

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: 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.
==========================================================================================================================================

When the Republican Party sold its soul to the Tea Party, the devil was bound to show up and demand his due. And here he is. The Tea Party, that anti-government, anti-spending, anti-people group promised an election victory, and the Republicans, abandoning all sense of morality, compromise and history, leaped at it.

What the Tea Party didn’t mention is that reduced deficit spending invariably leads to recessions and depressions and great human hardship, and while you can fool the voters for a while, you can’t fool them long enough to make a lasting election impact.

So now we have the formerly pro-business party, a party I formerly supported, because it was pro-GDP growth, facing the devil of reality. Cut federal deficit spending and not only do you destroy the economy in general, but you destroy many specifics like employment, Medicare, Medicaid, Social Security, roads, bridges, the military, support for the poor and the million other things deficit spending brings to voters.

Just one tiny example:

Chicago Tribune; 12/21/11;
Young women’s use of reproductive health care down

Fewer U.S. women 15 to 24 are receiving reproductive health care . . . This includes services such as Pap tests, pregnancy tests, contraception prescriptions, test for sexually transmitted disease and other gynecological and obstetric care. . . Several factors may be contributing including the decline in public sector clinics serving the poor, increasing unemployment and the corresponding lack of health insurance . . .

And then there’s

The Washington Post
Should the doc fix get fixed?
Posted by Sarah Kliff at 11:12 AM ET, 12/20/2011

(Kelley McCall – AP) It’s become a tenet of conventional wisdom for Republicans and Democrats alike: The government will not cut Medicare doctors’ salaries. For 15 years now, the formula used to determine how much doctors get paid has not kept up with growth in health-care costs. So Congress reliably passes a “doc fix” and appropriates additional funds to cover the shortfall, sometimes giving providers a slight raise.

Imagine any sane people engaging in such a charade? The formula is bad, so rather than correcting the formula, Congress repeatedly patches a “fix.” This allows the people in Congress to waste time and effort, year-in and year-out fighting about the same issue, using the same arguments.

One can argue about doctor compensation, but it would be difficult to argue that reducing doctor compensation somehow will increase the quantity or quality of doctors, or any other aspect of health care.

What is the basis for the argument and why is it in question now? The basis is federal deficit spending and the reason it suddenly is a problem: The Tea Party’s hold on the Republican Party.

And as part of the above:

Washington Post; 12/21/11
Congress leaves town with an uneasy stalemate and looming payroll tax hike

The House voted on Tuesday to reject a Senate compromise that would have extended a federal payroll tax holiday for two months and continued unemployment benefits for the long-term jobless.

The Republicans are caught. Viscerally, they support business and rich people, so they have to demand inclusion of the Keystone XL oil pipeline in the bill. (Don’t ask what this has to do with the payroll tax. Congress’s arcane rules allow anything to be included in any bill for anything.)

The Tea Party fringe (aka the tail wagging the dog), demands that any tax reduction be balanced by a spending reduction – so-called “fiscal responsibility” – but each spending reduction is hated by millions of voters.

And voters don’t want to see their taxes raised, especially when (wrongly) believing the taxes will go into the hands of an insane, inept, crooked Congress. Actually, federal tax money doesn’t go into anyone’s hands; it’s destroyed upon receipt. But the Tea/Republican Party has voters so confused, their understanding of economics has fallen even from its previous, minimal levels.

So by embracing the devil, and departing from their business-growth, GDP-growth roots, the Republicans find themselves damned if they do and damned if they don’t – and a well deserved damning it is.

I predicted this dilemma way back in April, 2010 (https://rodgermmitchell.wordpress.com/2010/04/01/republicans-fall-into-obama-trap/). I get no pleasure now from seeing my prediction come true, because it took no genius to base that prediction on these absolute facts:

1. Federal Deficits – Net Imports = Net Private Savings. Reduce deficits and you reduce the private savings that spur economic growth.
2. GPD = Federal and Private Spending and Investment – Net Imports. Reduce federal spending and private spending, and you reduce GDP
3. The government pays for millions of things voters want.
4. The government is Monetarily Sovereign, so can pay any bill of any size at any time.

I pray my formerly beloved Republican Party finally acquires the stones to renounce and ditch the Tea Party, and return to its pro-GDP growth roots. Then, it no longer will be burdened with its current crop of mad hatter presidential candidates, and might even acquire a modicum of respect.

Today, the Democrats are the lesser of two evils. They too don’t understand economics — They are, after all, the “tax and spend” party — but they vote from their hearts, they are closer to the 99%, and their souls don’t belong to the devil.

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

Here is the European Union’s plan to save the eurozone: Ask people to lend to a poor person, then ask the poor person to lend to deadbeats, who can’t afford to service their current debts, much less pay for new debts.

What could possibly go wrong with that?

New York Times
Euro Zone IMF Loan Target in Danger as UK Declines
By Reuters, December 20, 2011

BRUSSELS/LONDON – Euro zone ministers agreed on Monday to boost IMF resources by 150 billion euros (125.8 billion pounds) to ward off the debt crisis and won support for more money from EU allies, but it was unclear if the bloc would reach its 200 billion euro target after Britain bowed out.

Following a three-hour conference call, European Union finance ministers said currency zone outsiders the Czech Republic, Denmark, Poland and Sweden would also grant loans to the International Monetary Fund to help save the 17-nation zone.

But the EU said those lenders must first win parliamentary approval, while Britain made it clear it would not participate in the plan. That leaves the euro zone more reliant than ever on major economies such China and on Russia, which has shown willingness to lend more to the IMF. The United States for its part is concerned about the lender’s exposure to the euro zone.

“Euro area member states will provide 150 billion euros of additional resources through bilateral loans to the fund’s general resources account,” the EU finance ministers said in a joint statement after their call.

“The EU would welcome G20 members and other financially strong IMF members to support the efforts to safeguard global financial stability by contributing to the increase in IMF resources,” the statement said.

O.K., let’s see if I can explain this: The euro nations, being monetarily non-sovereign are unable to create euros. So unless they can obtain euros from outside their borders, or cut way back on spending (aka “austerity”), they will be unable to pay their bills, long-term.

But, if the euro nations cut spending, and force austerity, they will have the worst recessions – more likely depressions – imaginable.

Then again, if they borrow, that borrowing must be repaid, so the euro nations will be in worse shape than before. In essence, they have maxed out their credit cards, and now are looking at friends and family to lend them even more – and they still have no source of income with which to pay the old loans, much less the new loans.

Meanwhile, the EU, which has the unlimited ability to create euros wants the IMF to borrow euros so the IMF can lend euros to the euro nations. That’s the plan, as opposed to the EU simply giving euros to its member nations.

Speaking during testimony to the European Parliament, ECB President Mario Draghi praised EU efforts to forge a new ‘fiscal compact’ as a solid base for responding to the crisis, and called the euro an “irreversible” project.

“I have no doubt whatsoever about the strength of the euro, about its permanence, about its irreversibility,” he said.

“You have a lot of people, especially outside the euro area, who really spend a lot of time in what I think is morbid speculation, namely, what happens if? And they all have catastrophic scenarios for the euro area.”

But he said bond market pressure on the euro zone would be “very significant” in the first quarter, with some 230 billion euros of bank bonds, up to 300 billion in government bonds, and more than 200 billion euros in collateralized debt all maturing.

Draghi, in a classic “whistling-past-the-graveyard” statement, says the euro is strong and “irreversible.” Unfortunately, the euro nations are not strong; most are insolvent, with giant debts to pay. And as for the euro being irreversible, that’s just plain stubborn nonsense.

While EU leaders agreed at their last summit on the desire to boost IMF resources, there are doubts about whether the scheme will work, with not just London and Washington unenthusiastic, but Germany’s Bundesbank too.

The “plan” is to lend euros to an under-funded middleman (the IMF), which then will lend euros to nations already drowning in debt. Meanwhile, the EU, which has unlimited funds, stands on the sidelines and demands the euro nations destroy their economies.

There continue to be two, and only two, long-term solutions for euro nations:
1. Return to Monetary Sovereignty by re-adopting their sovereign currencies or
2. The EU to give (not lend) euros to member nations as needed.

Those who do not understand Monetary Sovereignty do not understand economics.

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