–Remember Europe? Once important; soon austere.

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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Remember Europe? It used to be important.

As we watch in sorrow and amazement, the great European nations slowly fade into a distant memory, hung on their own petard, the euro. All those once-viable, once-powerful nations, melting, melting like the Wicked Witch of the West.

There is Greece:

Greece: Austerity Bill Passed, Despite Protests
Huff Post, Nicholas Paphitis and Derek Gatopoulos 10/20/11

ATHENS, Greece — Greek lawmakers passed a deeply resented new austerity bill Thursday, caving in to the demands of international creditors in order to avoid a national bankruptcy, as a second day of riots left one protester dead and more than 100 people wounded.

The austerity measures won 154-144 in the 300-member parliament despite dissent from a prominent Socialist lawmaker who voted against a key article of the bill. The vote was expected to pave the way for a vital euro8 billion ($11 billion) payout from creditors within weeks so Greece can stay solvent.

And Italy:

Uncertainty over Italy’s future slams markets
Markets’ Berlusconi rally proves short-lived as Italian borrowing rates again spike higher
Pan Pylas, AP Business Writer, On Wednesday November 9, 2011

LONDON (AP) — Uncertainty over who will lead Italy through the debt crisis once Premier Silvio Berlusconi resigns slammed European stocks and bonds on Wednesday, pushing Rome’s borrowing rates to worrying new highs.

Tuesday’s news that Berlusconi had finally bowed to pressure and would resign once new austerity measures are passed had helped markets in the U.S. and Asia higher. Berlusconi had been perceived as part of the problem in the political deadlock gripping Italy.

And Spain.

Spain and the euro crisis
A great burden for Zapatero to bear
The Spanish prime minister has become a reluctant convert to reform—but maybe too little, too late
Jan 20th 2011 | MADRID | The Economist

José Luis Rodríguez Zapatero, the Spanish prime minister . . . said,“There is something worse than the lack of a broad consensus about how to implement reforms and that is, especially at this moment in time, a lack of reform.”
[…]
Spain’s road to recovery is still fraught with dangers. […] The need for reform and austerity is urgent. As Portugal teeters on the verge of a bail-out, Spain yo-yos anxiously. It has just had to pay a steep 5.5% on a €6 billion ($8 billion) syndicated bond. Spain’s fellow euro members are looking for broader solutions to their sovereign-debt crisis, in which Spain (by virtue of its size) is by far the biggest risk.
[…]
Elena Salgado, the finance minister, trimmed the budget deficit from 11.1% of GDP in 2009 to under 9.3% in 2010. She aims to get it to 6% this year. Spain’s national debt is below the euro-zone average and less than America’s and Britain’s.
[…]
The government has dragged its feet on reform in the past. A so-called sustainable economy law, which Mr Zapatero announced in May 2009, is still stuck in parliament.

And Portugal.

Financial Times, October 13, 2011
Portugal announces more austerity measures
By Peter Wise in Lisbon
Portuguese employees will have to work longer, lose bank holidays and forfeit more than a month’s wages in holiday bonuses to combat pressures to leave the euro, the prime minister announced on Thursday night.

In a televised address to the nation, Pedro Passos Coelho outlined the country’s toughest austerity package to date in an effort to avert what he described as a “national emergency”.

And Ireland.

Ireland Plans 12.4 Billion Euros of Austerity Through 2015
Bloomberg, By Finbarr Flynn and Joe Brennan – Nov 4, 2011 11:51 AM CT

Ireland plans 12.4 billion euros ($17.1 billion) of austerity measures over the next four years as it pushes on with a fiscal program to reduce the deficit and insulate it from the crisis in Greece.

There is “no easy path forward,” Finance Minister Michael Noonan said in Dublin today as he published the government’s Medium-Term Fiscal Statement. He is planning a 3.8 billion-euro adjustment in 2012 after a 6 billion-euro budget in 2011. The government also cut its 2012 growth forecast to 1.6 percent from 2.5 percent.

A quote, variously attributed to Albert Einstein, Rita Mae Brown or Narcotics Anonymous, is apt here: “Insanity is doing the same thing over and over again but expecting different results.” Every euro nation believes its salvation comes from reduced government spending combined with increased government taxes, in short, reduced deficits – in short, austerity.

That fact that a reduced deficit – austerity — never has saved an economy, cannot save an economy and always will lead to economic disaster, does not seem to trouble the economists who preach it again and again.

Austerity is ignorance. Austerity is poverty. Austerity is a depression. Austerity is misery for a nation’s citizens, their children and their grandchildren, far into the future. Austerity is a trip to third-world status, or worse. Austerity is bleeding a patient to cure his anemia.

Deficit reduction cannot save Europe. Even were deficits reduced to zero, the euro’s fundamental weakness would continue: Monetarily non-sovereign nations, being unable to create unlimited money, cannot survive long-term without money coming in from outside their borders. This is an absolute law in economics.

There is no magical, long-term solution. No amount of deficit reduction, no amount of austerity will save monetarily non-sovereign nations. Austerity is insanity and death.

And austerity is the goal of America’s Congress and President and the special committee to reduce the deficit.

Remember Europe?

Remember America?

I award 5 dunce caps to all those who believe reduced government deficits will stimulate economic growth, reduce unemployment and save a country from recession.

(I now am running a 1070 dunce cap deficit. Yet I feel no need for austerity. Fear not. I have plenty of dunce caps I can award to politicians, media, economists and the Tea Party.)

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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

–What would happen if Greece returned to the drachma?

What would happen if Greece abandoned the euro? I don’t know. No one does, though everyone has opinions, and most of those opinions include words like “disaster,” “panic” and “bankruptcy.” So since opinions are free, I’ll give you mine, and mine does not include those words. Not at all.

The key to a smooth transition from euros to a Monetarily Sovereign currency, the drachma, is to create sufficient demand for the drachma to prevent excessive inflation.

Let’s say the Greek government announced that heretofore:

1. The drachma would be the official currency of Greece. The Greek government would exchange one drachma for one euro, in unlimited amounts. Accounts at Greek banks that currently are stated in euros, would be stated in drachmas.

2. Payments by all Greek governments, local and national, would be made in drachmas, not in euros. This would include payments on domestic and foreign debt, payments of government salaries, and payments for goods and services. The payments would be made at the rate of one drachma for one euro.

3. Domestic business must pay salaries and domestic suppliers in drachmas

4. Taxes paid to the Greek government and to any sub-governments must be made in drachmas, not in euros.

5. Greek banks would domestically lend only drachmas, and all domestic creditors, including banks, must accept drachmas in payment for debts.

6. The Greek government would continue to issue bonds, not because it needs to borrow, but to help regulate interest rates, which in turn, help regulate demand for drachmas. The bonds would carry a high enough interest rate to create demand for drachmas.

What does this accomplish? Greece would become Monetarily Sovereign. Its “debt problem” instantly would disappear, as it would have the unlimited ability to pay any bill of any size, any time. Demand for the drachma would be established, to mitigate against inflation.

So tell me, how do you feel this compares with the short-term, borrowing/austerity “solutions” advocated by the IMF and the EU? Personally, I think its much better, partly because it actually is a long-term solution, not a short-term palliative.

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

MONETARY SOVEREIGNTY

–Why don’t the facts penetrate? Why don’t we get it? Why don’t we want to get it?

Those who understand Monetary Sovereignty continually wonder why the facts don’t seem to penetrate. The concept is so simple and straightforward, yet not one person in a thousand is willing to examine those facts, much less understand them or agree with their implications. Why?

I can remember an incident from the time I was five years old, and memory being what it is, I probably remember it wrong. The memory is of a family picnic. My uncle had built a bonfire, and my parents, uncles and aunts threw branches and leaves into it, which made the fire flare up in a big roar.

We kids loved it, but were not allowed to throw things into the fire, because it was considered dangerous. I recall whining about this, so after a time, my father said, “O.K., you can throw sand into the fire.” Thrilled, I picked up a handful of sand and threw it in, but the fire didn’t grow. So I threw another handful and another, but instead of flaring up, the fire grew smaller.

Finally, much to my dismay, the fire went out, and all the fun went out with it. I thought I was building the fire, but I was putting it out. And on the drive home, when I realized what I had done, I felt so sad. I fundamentally misunderstood the difference between wood and sand. That’s what I remember. That feeling of sadness and betrayal and ignorance.

And now I look at the American people, exactly 99% of whom are “99%ers,” demanding that federal spending be reduced, and taxes be increased – that Social Security be cut to save it, and Medicare and Medicaid and the military – in effect, throwing sand on the economic fire, and I empathize in advance, the sad, betrayed feeling they will have, and the feeling of ignorance.

So a fundamental misunderstanding about the nature of things may be part of it.

“Forgive them father, for they know not what they do.” I forgive them, but will they forgive themselves, when or if the realization sets in?

Then there are those of you who are parents; you know the drill. Something happens when your child becomes a teen: Based on your experience, you tell your teenage child to do something or not to do something, and what is the reaction? Anger at your interference? Disgust at your foolishness?

No matter that you have clear facts on your side. The teen brain doesn’t want to hear facts; he (or she) wants to hear what his contemporaries say. He wants to follow in the herd. He doesn’t want to think; he wants to feel. There is safety in the group.

And now I look at the American people. The facts of Monetary Sovereignty are irrefutable, but the people don’t want to hear facts. Their reaction to those facts is anger at this interference in their preconceived notions, disgust at the foolishness of those trying to explain the facts. The people not only want to follow the herd, they want to follow in the middle of the herd. They don’t want to think; they want to feel – safe.

Perhaps the teen brain has an evolutionary benefit, allowing humans to ignore facts in favor of group adhesion. And all of us retain vestiges of this teen-brain, even into our dotage. Our teen brain cheers passionately for our favorite sports team, when our logical brain tells us that team’s success will have zero practical benefit for us.

So teen brain may be part of it.

And then there is the “too-good-to-be-true” syndrome. Bad experience has taught us cynicism is wiser than optimism. The hard way seems more noble than the easy way. Politicians boast about their humble beginnings, as though climbing the ladder from the very bottom is superior to climbing it from the middle. And working for something is superior to having it given to you. And “if it seems to good to be true, it probably is.”

Monetary Sovereignty seems too good to be true. The federal government can pay any debt. In fact, it creates more money simply by paying its debts. Taxes are unnecessary. Borrowing is unnecessary. Bankruptcy is impossible. And all the while, inflation can be prevented. We can have Medicare for everyone. Education for everyone. A much richer Social Security. An end to poverty. We can have it all.

This cannot be. Our world is turned upside down. All we have been taught and all we believe is wrong. This is too good to be true; it cannot be true. It is Pollyanna.

So cynicism may be part of it.

In answer to the question, why don’t the facts penetrate — why don’t we get it — part may be that fundamental misunderstanding about the difference between people’s finances and the federal government’s finances. Part may be the teen brain. And part may be cynicism.

Put them all together and they spell “austerity,” for us, for our children and for our grandchildren. This will be our legacy. This is how we will be remembered.

Or maybe there’s something else. Searching. Searching.

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

MONETARY SOVEREIGNTY

–The New York Times, a model of consistency. Has spread the same economic ignorance for 40 years.

I haven’t bothered to read the New York Times in months, only because they print exactly the same economic tripe as my hometown paper, the Chicago Tribune. So what would be the purpose? But on the lottery-scale chance things had changed, I decided to give them another peek. After all, they are one of the world’s great newspapers, aren’t they?

Here is what I found.

The Gridlock Where Debts Meet Politics
By David Leonhardt, November 5, 2011, NY Times

WASHINGTON — With Greece struggling to form a government that can force harsh austerity measures onto a weary public, Europe is in usual form, taking a couple of steps toward solving its fiscal crisis and then a couple of steps backward. Washington, meanwhile, is hoping that the latest deficit-reduction committee in Congress can succeed where others have failed.

Of course, if the deficit-reduction committee “succeeds” in cutting the deficit, America will have a fiscal crisis identical with that of Europe’s, perhaps worse.

This cycle of bureaucracy and gridlock has been repeating itself for months now. It is tempting to blame feckless politicians on both sides of the Atlantic, and that would not be entirely wrong.

But the frailty of politicians is not the full story. The fact is that most of the industrialized world — Europe, the United States, Japan, too — is in a difficult economic bind. There are no simple solutions that would quickly win the approval of citizens if only politicians were willing to try them.

The author, David Leonhardt, clearly does not understand the differences between Monetarily Sovereign nations (United States, Japan, some of Europe) and monetarily non-sovereign nations (the euro countries). So he just lumps them together as though they had similar problems.

And no simple solutions? Really? How about these:

1. Monetarily sovereign nations increase deficit spending
2. Euro nations either leave the euro, or the EU give (not lend) euros to its member nations, as needed.

That simple enough for you, Mr. Leonhardt?

Most voters in these places have yet to come to grips with the notion that they have promised themselves benefits that, at current tax rates, they cannot afford. Their economies have been growing too slowly, for too long, to pay for the coming bulge of retirees.

True for monetarily non-sovereign nations; completely untrue for Monetarily Sovereign nations, which do not use taxes to pay for benefits. Nor do economies pay for retirees, if Mr. Leonhard is referring to programs like Social Security.

“The U.S. and Europe have to make hard choices because of two things: slower growth and aging populations,” said Barry Eichengreen, an economist at the University of California, Berkeley. “Europe’s choices are even harder than America’s, because the prospects for growth are more dubious.”

The problems of Europe’s monetarily non-sovereign nations are completely different from the problems of Europe’s Monetarily Sovereign nations. Mr. Leonhardt doesn’t understand that. Talking about “Europe’s choices” simply makes no sense.

Europe still has not set aside enough money to cover its debts, with Italy now presenting the most immediate problems, many economists say. In the United States, a special Congressional deficit committee appears to be making little progress, and some members of Congress have even begun talking about undoing the automatic Pentagon cuts set to take place if the committee deadlocks.

Same problem. He writes about economics, but has no clue about the differences between MS and monetary non-sovereignty. So, he has no clue about economics. The UK doesn’t need to “set aside” money, though Spain does. If Mr. Leonhardt were a sportswriter, he might say, “The problem with the Chicago Bears and the Chicago Cubs is they don’t get on base enough.”

On the most basic level, affluent countries are facing sharply increasing claims on their resources even as those resources are growing less quickly than they once were. The increasing claims come from the aging of the population, while the slowing growth of available resources comes from a slowdown of economic expansion over the last generation.

Pure gobbledegook. What “resources and what “claims” is he talking about?

“These are very difficult moral issues,” said Benjamin an, an economic historian at Harvard. “We are really talking about the level at which we support the elderly retired population.”

If there is a university that combines more hubris with less knowledge of economics than Harvard, I’d like to know what . . . oh, wait . . . The University of Chicago is right up there. Anyway, does the government of the greatest nation on earth – a nation with the unlimited ability to pay any bill of any size, really have a “difficult”moral issue, in deciding whether to support its elderly? This is a difficult issue?

In the United States, the debates center on whether to let government grow as the population ages and whether the affluent, who have done very well in recent decades, should pay more taxes. In Europe, the issues revolve around whether to shrink government, which is bigger than it is here, and whether well-off northern countries like Germany should support poorer countries, like Greece and Italy, which also suffer from fiscal irresponsibility.

Yup. Sadly, those are the debates, only because the economists and the media put their hands over their ears and scream, “I can’t hear you. I can’t hear you.” whenever anyone mentions Monetary Sovereignty.

Everywhere, though, the debate is about much more than just partisan advantage or the next election. It is a philosophical debate.

Yah, right. It’s a philosophical debate – about who will win the next election.

Polls, however, suggest that there is little political advantage in explaining the reality of future budget math. “Everybody thinks, ‘My taxes are going to fund somebody else’s social programs,’ ” Mr. Eichengreen said, “making people even more resistant to solutions.”

In other words, the pols think the voters are too stupid to understand the facts, so why even bother? Just keep feeding them bullsh*t, and hope to win next November. Who cares about reality or the future of America.

An article in the current issue of The National Interest, named this problem the “no-growth trap.”

In the short term, this trap takes the form of resistance to emergency measures, like Germany’s distaste at bailing out more profligate countries, which may increase deficits. “The central paradox of financial crises,” Timothy F. Geithner, the Treasury secretary, said before leaving for the Group of 20 meetings in Europe last week, “is that what feels just and fair is the opposite of what’s required for a just and fair outcome.”

No, the central paradox is those people who have been given the power to solve the problem don’t understand Monetary Sovereignty, so they have no solutions.

Longer term, the trap is created by resistance to the higher taxes and reduced benefits necessary to return countries to financial stability. The resistance is understandable, given how weak income growth has been in the past decade, but it is not sustainable.

The voters are smarter than their leaders. The voters know higher taxes and reduced benefits will not “return countries to financial stability,” unless one considers a depression and the death of a nation to be financial stability.

In the months since I last visited the New York Times, nothing has changed – still printing the abject ignorance about our economy – still mouthing the same, old, popular economic wisdom that went obsolete on August 15, 1971.

It’s been more than 40 years. Isn’t that enough time for the vaunted New York Times to catch up?

One dunce cap for Mr. Leonhardt

(This brings us to a 1065 cap deficit. I doubt a cap tax will bring me to cap stability.)

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

MONETARY SOVEREIGNTY

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