–What is the one thing no one will believe?

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. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Science buffs probably enjoyed reading the many articles appearing recently in newspapers and magazines all over the world, exemplified by today’s editorial:

Was Einstein wrong?

The latest in a long line of challengers (to Einstein): scientists at the European Organization for Nuclear Research (CERN). Last week they startled physicists around the world – and a few nonphysicists, too – by declaring they had recorded subatomic particles called neutrinos treveling saster than the speed of light. . .

. . . A cornerstone of Einsteinian theory is that nothing can travel faster than the speed of light, about 186,000 miles a second. . . .

“It would be amazing, everyone would be jumping up and down like crazy,” Cal Tech theoretical physicist Sean Carrol told us. “It would certainly be the most surprising discovery in the last 100 years.”

Reality check: The CERN experimenters are probably wrong.

This editorial goes on about how unlikely this speculative finding is, but despite this low probability, the editorial warrants a full 1/3 page space in a major market newspaper, the – you guessed it – Chicago Tribune.

The point of this blog post: A one-time, low probability, almost-sure-to-be-found-wrong finding, by one group of scientists is given prominent space, while a high probability, almost-sure-to-be-found correct, decades-long finding by dozens of respected scientists worldwide is never given even a mention in the same paper. I’m talking about Modern Monetary Theory / Monetary Sovereignty.

Why the difference?

Is it because the Tribune’s editors, and like minded editorial writers, realize they know nothing about physics, and so will print anything that physicists send around? Is it that the editors have no solid beliefs or background in physics, and don’t want to look like idiots by disagreeing with physicists?

Contrast physics with economics: The editors know economics, or believe they do. After all, economics is just money – spending, saving, earning, borrowing, owing, paying, investing, losing. While the Tribune editors know nothing about neutrinos, they surely know everything about dollars. So while they will accept almost anything the physicists say about neutrinos, the editors will accept nothing about money that differs from what they already know.

So that’s it? That’s why news about a complex, unknowable (to the editors) subject receives the respect news about a familiar subject doesn’t. Right?

No, I don’t think so. I think the real problem is the Tribune’s and virtually all newspapers’ editors have too much, as the saying goes, “skin in the game.” Before 1971, the end of the gold standard, they spoke of the need to reduce deficits, and never changed after 1971. They have preached the same “debt-is-a-ticking-time-bomb” sermon since at least 1940, and are so committed they cannot bring themselves to admit to the world they have been wrong, wrong, wrong. Even worse than admitting you’ve been wrong is admitting your errors have forced politicians to pursue schemes damaging to America.

If Monetary Sovereignty just were counter-intuitive, I suspect curiosity would drive the editors to look at the data. They are, after all, newspaper people, accustomed to seeking out hidden facts and bringing them to their readers. That is their world. It’s why they delight in writing editorials about neutrinos.

But they don’t seek the unfamiliar facts about our economy. They turn away. They close their eyes. They scream “Na, na, na, I can’t hear you,” and that only could mean, “I don’t want to hear you.” In the Chicago Tribune’s case, even the man who is President, Publisher and CEO has his hands clapped tightly over his ears.

Throughout history, it always has been hard to convince honored doctors their favorite treatment has been killing people. Call it the Semmelweis syndrome.

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

–Will China help drown Europe?

Time Magazine published online (9/29/11) an article by Roya Wolverson titled, “Will China help save Europe?” In the article, she said:

There’s been a lot of talk this week in China about whether it should swoop in to save the eurozone. Loading up on Italian debt is one possibility, which could keep Europe’s overall bailout tab in check and boost market confidence.

Another idea is to create an EU-China bond. Unlike an EU-only bond (a concept that hasn’t gained traction among fuming Germans and Greeks), an EU-China bond would rope richer China into the deal by offering a better interest rate than it’s getting on, say, U.S. Treasury bonds. And, backed by the heft of the German economy, the bond would offer a low-risk bargain for investment-savvy Beijing.

I don’t know why she refers to this as “saving” Europe. Lending more money to monetarily non-sovereign nations that already are indebted beyond their ability to pay, doesn’t sound like much of a save. It’s like rescuing a drowning non-swimmer by dragging him into deeper water.

There are only two long term solutions for the euro nations. Either:

1. Each to become Monetarily Sovereign by re-adopting their own sovereign currencies
or
2. The EU to give (not lend) euros to member nations ala the U.S. federal government giving money to the monetarily non-sovereign states.

My guess, the euro nations will be so desperate they finally will be ready to move away from their “lend-more-money-to-cure-indebtedness” philosophy. One or two nations might opt for solution #1, but the majority will be dragged, kicking and screaming into #2.

What will this mean? Done properly, without Tea Partyesque nonsense, solution #2 not only could save Europe, but it could make the euro the most powerful currency in the world, supplanting the dollar as the world’s reserve currency. Those European nations not currently using the euro probably would jump in, and down the line, even non-European nations could join.

Looking way, way into the future, I even could imagine the euro becoming the entire world’s sole currency.

By the way, Ms. Wolverson also said:

Of course, one perk for the Chinese would be boosting its status as a global financial player. But when you have a billion citizens restlessly awaiting their chance to climb out of poverty, it’s worth thinking twice about draining your rainy day fund.

Readers of this blog know Monetarily Sovereign nations like China (and the U.S.) neither have nor need a “rainy day fund.” They create all the money they need by spending, i.e. by instructing creditors’ banks to mark up creditors’ checking accounts.

Ms. Wolverson belongs to that vast army of columnists ignorant about Monetary Sovereignty.

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

MONETARY SOVEREIGNTY

Rodger Malcolm Mitchell

–My strange correspondence with Chicago Tribune’s top executives

As readers of this blog know, I often have written to Chicago Tribune executives about the illogic of their continual debt-hawk editorializing. They seldom have responded. Perhaps too busy? Or perhaps my Monetary Sovereignty ideas were thought to be so ridiculous, they felt no need to dignify my comments with a response.

On 9/26/11 however, (surprise!) they answered this letter I sent to Bruce Dold, editorial page editor and to Tony Hunter, president, publisher and CEO of Chicago Tribune Company:

Monday, September 26, 2011
Subject: Time to end farm subsidies

The Chicago Tribune continues to parrot the popular wisdom. Its 9/26/11, editorial titled, “Plow ‘em under: Time to end farm subsidies,” included this short paragraph:

But the giveaways at taxpayer expense must stop. They’re an unaffordable drain on the Treasury.

One can argue about whether farm subsidies should be eliminated, reduced or re-directed, but they do not cost taxpayers one cent, they are not unaffordable and they do not drain the Treasury. Federal taxes are not related to federal spending.

Our Monetarily Sovereign federal government spends by marking up creditors’ checking accounts, a process not related to tax collections. If taxes fell to $0 or rose to $1000 trillion, neither event would affect the government’s ability to spend by even one penny.

There is no limit to the federal government’s ability to mark up creditors’ checking accounts; therefore nothing is “unaffordable.” And the Treasury does not store money. It creates money ad hoc, by spending, i.e. by marking up checking accounts. Therefore, it cannot be “drained.”

Unfortunately, the Tribune does not understand the difference between the federal government and state/county/city governments, which do spend taxpayers’ money, and for which spending can be unaffordable and can drain their treasuries.

One wonders when, if ever, the Tribune editors, who write about economics, will bother to learn economics.

Rodger Malcolm Mitchell

I received the following response from Mr. Dold, with a cc. to Mr. Hunter:

9/26/11: Dear Mr. Mitchell,

Thank you for your note and for your other emails on this subject to Tony Hunter and to me. I want to assure you that I have shared your views with other members of the editorial board and discussed them with Mr. Hunter. The editorial writers understand your position on monetary sovereignty. We respectfully disagree with your views on the likely economic impact if federal policy were based on those views.

Again, thanks for corresponding with us.

Bruce Dold
Editorial page editor

I responded:

Thank you for your note. Briefly, Monetary Sovereignty says:

1. Following 1971, the end of the gold standard, federal government spending has not been limited by taxing or by borrowing, but only by inflation considerations.

2. Therefore, federal spending does not use “taxpayer money” or borrowed money. Even were taxes and borrowing to fall to $0, the federal government would retain the unlimited power to create dollars (again, limited only by inflation).

3. The states, counties, cities, businesses, you and I are monetarily non-sovereign. They do use taxpayer money and borrowed money, to pay their bills. Beliefs about federal financing therefore must differ from beliefs about state, local and personal financing.

With which of these facts do you disagree?

Rodger Malcolm Mitchell

They responded:

I think you answer your own question. Yes, the federal government can print dollars, which state and local governments cannot do. But to do so at will would have staggering inflation implications. To say federal spending does not use borrowed money seems to ignore the $9.5 trillion in U.S. public debt, half of which is held by foreign entities. S&P wasn’t willing to ignore that.

Bruce Dold
cc: Tony Hunter

I answered:

Yes, Bruce and Tony, that is the important thing to remember. The only implication of federal money creation is inflation, not the federal government’s ability to pay its bills. The federal government cannot be “broke” (as Boehner claimed), nor can it ever be unable to service its debts — all without inflation.

Here is how the federal government borrows, for instance, from China.

1. First, China must deposit dollars (not yuan) into its checking account at the Federal Reserve Bank.

2. Then, to “lend” to us, China asks the U.S. federal government to debit its checking account and to credit China’s T-security account, also at the Federal Reserve Bank. (A T-security account is similar to a savings account.)

3. Then, to “pay off” the loan, China’s T-security account is debited and China’s checking account is credited– all at the Federal Reserve bank.

And that’s it. Federal “borrowing,” which is much different from personal borrowing, consists of nothing more than debiting and crediting accounts at the Federal Reserve bank. There never is a time when federal debt is a burden to the federal government. It can debit and credit accounts at the Federal Reserve Bank, forever, and it can do so without inflation.

The entire $9.5 trillion federal debt could be “paid off” tomorrow, if the federal government chose to do so. It merely would credit all the checking accounts of T-security holders and debit all their T-security accounts.

S&P ignored the fundamental difference between a Monetarily Sovereign nation and monetarily non-sovereign entities like you and me.

Now, I suspect your next two questions are:

1. Why do you know this, while Congress, S&P and many economists don’t?
2. What about inflation?

If you are interested in learning the answers to these questions, and to all your other questions about economics, please let me know. Merely ask your questions and I will answer them. I suspect you will find this enlightening and interesting.

Rodger

And then I added:

I neglected to mention that the federal government “borrows” (i.e. issues T-securities), not because it needs dollars. It doesn’t. It issues T-securities because of obsolete laws, created during times of monetary non-sovereignty, which require the Treasury to issue T-securities in an amount equal to the federal deficit.

When the government was monetarily non-sovereign, it relied on taxes and borrowing, just as the states, counties and cities do. No longer. A fundamental quality of a Monetary Sovereign nation is that it does not require or use income to pay its bills. It pays by sending instructions to creditors’ banks to mark up creditors’ checking accounts. It can send these instructions endlessly, without any need for taxing or borrowing or income of any sort.

Rodger

So far, no further responses. Notice the key, nonsensical phrases in their response: “Yes, the federal government can print dollars, which state and local governments cannot do. But to do so at will would have staggering inflation implications. To say federal spending does not use borrowed money seems to ignore the $9.5 trillion in U.S. public debt, half of which is held by foreign entities.”

Why nonsensical? Because first he acknowledges that the federal government can create dollars (He wrongly calls it “print dollars.”) Then he says I “ignore the $9.5 trillion in U.S. public debt . . .” Since the federal government can create dollars, why does it borrow, and why is borrowing (or repaying) a problem that should not be ignored?

Therein lies the problem. Debt hawks have the uncanny ability to hold two opposing views, simultaneously. Obviously, a nation that can create its sovereign currency does not need to borrow its sovereign currency, nor would it have any difficulty servicing any sovereign debt. These Tribune top executives don’t understand the illogic of their position.

So today, I sent them this note:

Since as you say, “the federal government can print dollars,” why does it need to borrow, and why is S&P concerned about federal borrowing?

Think about it.

Rodger

I don’t expect an answer, but if one comes, I’ll fill you in. Meanwhile, my hope is that by some miracle, I can convince one major newspaper to print economic fact rather than myth — or at least engage in a rational dialog about economics. What a step forward it would be. Perhaps you can attempt the same with your local paper.

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

MONETARY SOVEREIGNTY

–Help! This health care fight has me baffled. Do you have the answer?

This Washington Post article, and the numerous articles like it, has me puzzled. Perhaps you have the answer. If so, please enlighten me.

Decision on health-care law means Supreme Court will likely determine constitutionality next summer
By Robert Barnes

The constitutionality of the 2010 health-care law will likely be determined by the Supreme Court this term, meaning the decision could come next summer in the thick of the 2012 presidential campaign.

The Justice Department said Monday evening that it had decided not to ask the full U.S. Court of Appeals for the 11th Circuit in Atlanta to take up the case. A three-member panel of the court last month decided 2-1 that Congress overstepped its authority in passing the Affordable Care Act, which requires virtually all Americans to obtain health insurance.

Now, this is Obama’s signature bill, the single most important piece of legislation he has passed during his term. And it is being held in doubt by the requirement that all Americans buy health insurance.

I understand the adverse selection reason why they want everyone to buy the insurance now. They don’t want people waiting until they are sick, which would increase the net cost.

Tell me where I’m wrong, but wouldn’t the entire problem be solved if it were handled like Medicare Part D? No one is required to buy Part D, but if you delay past your eligibility date, you must pay more for coverage. This also is similar to Medicare Supplemental insurance. No one is required to buy that, either. But again, if you delay, the coverage will cost you more.

Someone please tell me why the same system would not work for the health care plan. That is, don’t require people to buy health care insurance, but if they don’t buy it now, it will cost them lots more later. If I’m missing something obvious, I may give myself a dunce cap.

It could be modified so that lower income people would receive premium assistance from the government. And, of course, my suggestion is for the federal government simply to provide free Medicare for all Americans, but that would make Congress insane. It’s too sensible.

Anyway, what is your opinion?

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

MONETARY SOVEREIGNTY

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