–Why Canada is Doomed

Canada has found the magic economic elixir we all should drink – at least according to this article

Smart Economics: Canada Teaches US Lessons in Fiscal Responsibility
John GiokarisinBusiness, National Debt

If lawmakers in Washington want to find out how sound economic policy and fiscal responsibility looks like on a national level, they need look no further than our neighbors to the north. That’s right, Canada.

Ever since Conservative economist Stephen Harper became prime minister of Canada in 2006, the country has seen revenues and investment increase, unemployment and deficits decrease, and for the first time in history, the average Canadian household is richer than the average American by $40,000.

You may be asking yourself, “How the heck did that happen?” Here’s how:

For starters, when Harper and his Conservative minority-government came to power six years ago, they implemented a series of tax cuts. Canada’s corporate tax rate has been lowered from 22% in 2006 to 15% in 2012.

The U.S., however, has maintained a 39.2% corporate tax rate (when including state and local taxes), now making us the highest in the world.

Right. Taxing corporations is the worst possible economic idea plan. A corporate tax is nothing more than starving the goose that lays the golden eggs.

Canada’s income tax rates are also substantially lower than America’s – setting its top bracket income tax rate at 29% vs. America’s 35%.

Another wise move. Because the U.S. and Canada are Monetarily Sovereign, taxes do not support government spending, so not only should be reduced, but actually could be eliminated. A Monetarily Sovereign government has no use for tax dollars.

Along with tax cuts, Harper has enacted significant government spending cuts. He reduced federal spending last year by 6.2% primarily by eliminating waste and prioritizing spending by department. For instance, he implemented budget increases for departments entrusted with security and law enforcement – such as a 21% boost to jails — but cuts of roughly 20% to unnecessary environmental protection programs.

Uh oh. Spending cuts to “unnecessary“(?) environmental programs?

In his 2012 budget, he pledged to cut $5.2 billion in federal spending every year for the next three years. Among the cuts are $31 billion from provincial health transfers, $377 million slashed from foreign aid and international development, 10% trimmed from CBC’s funding over three years and eliminating the Canadian penny.

More “Uh oh.” “Health care transfers” are the dollars the Canadian government gives to the provinces (like our states) to support health care, post-secondary education and welfare. The Canadian government is trying to balance its budget on the backs of its poorest citizens. Sound like a good idea?

Harper’s administration has worked to streamline the approval process for resource development and to collaborate on a broad, market-focused national energy strategy to capitalize on the country’s vast natural resources. They identified a handful of priority areas, such as regulatory reform, improving energy efficiency and developing new energy export markets.

Translation: Environment be damned. Cut regulations. Drill, baby. Drill!

And what is the result of these tax cuts, spending reductions, and energy job creation? Are people starving and children crying? Are trees dying and birds not flying? Did the sun not come up again?

No, quite the opposite. Canada has now seen their unemployment rate drop from a post-recession high of 8.3% in 2009 to 7.2% in 2012.

Their budget deficits have been cut in half from $53.8 billion in 2009 to $24.9 billion in 2012 and the country’s now on the path to balancing its budget by 2015. They are now the #1 supplier of foreign oil to the U.S.

Short term, Canada is turning itself into China, where exports trump environment, but long term will be quite another matter. An example of this short-term thinking can be found in the following, which was referenced by the above article:

Budget: Deficit to be eliminated over three years; moderate economic growth expected
By Gordon Isfeld, Postmedia News, 3/29/12

OTTAWA — The federal government nailed down its moving target for balancing the budget on Thursday, saying it will eliminate the shortfall over the next three years and post a surplus by 2015-16, as Canada’s economic outlook improves.

“In less than two years, we have already cut the deficit in half,” Finance Minister Jim Flaherty said. “We did it by ending our targeted and temporary stimulus measures, and by controlling the growth of new spending.”

The government on Thursday cut its deficit estimate for the current year to $24.9 billion from $31 billion — roughly in line with economists’ expectations — and set the shortfall for 2012-13 at $21.1 billion. The deficit is expected to shrink to $10.2 billion in 2013-14 and go down to $1.3 billion the following year.

The surplus (!) should come in at $3.4 billion in 2015-16, and reach $7.8 billion a year later.

Before we get too giddy at Canada’s “sound economic policy,” let’s look at a couple of fundamentals:

Gross Domestic Product = Government Spending + Private Investment and Consumption + Net Exports Simple algebra says that for the left side of the equation to go up, the right side must go up.

For GDP to rise, Government Spending and/or Private Investment and Consumption and/or Net Exports must rise. But Canada’s model depends on reduced Government Spending. So for the plan to succeed, Private Investment and Consumption and/or Net Exports not only must rise, but must rise more than Government Spending falls.

But Canada is not planning for just a balanced budget. No, Canada wants a budget surplus. This means taxes must exceed spending. A budget surplus requires that more dollars come out of the economy than will be pumped back in.

With fewer dollars available, how will Private Investment and Consumption, not just increase, but increase more than the reduction in Government Spending? The answer: It can’t. There is no magic where fewer dollars lead to greater Investment and Consumption.

And that brings us to the final term in the equation: Net Exports. Canada traditionally has had a positive balance of trade:

If Canada can, as it seems to promise, ignore the environment, cut regulations, and “drill, baby, drill,” Net Exports might be sufficient to support economic growth, (the German model).

But at what cost? Is reduced government spending which for a Monetarily Sovereign nation, costs nothing, worth reduced support for health care, post-secondary education, welfare and the environment?

Being Monetarily Sovereign, Canada can support any size government deficit, but can Canadians support support reductions in their health, education and environment?

My prediction: Unless Canadian Net Exports somehow rise to even higher levels than ever (probably requiring a major rape of the Canadian and world environment), the Canadian economy is doomed.

Monetarily non-sovereign governments, like the provinces (or American states), cannot spend, long term, more than their income. But, for a Monetarily Sovereign nation to run a balanced budget, much less a net surplus, is the height of suicidal lunacy.

Back in 2005, I predicted the euro nations were doomed (“Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.“)

My prediction was based on reduced money supply. It took six years for the euro cracks to widen enough for the world to see. Canada’s cracks may not take that long.

Rodger Malcolm Mitchell
Monetary Sovereignty

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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

–GSA pumps $1 million into the U.S. economy. Congress outraged

Hey GSA, here’s how not to spend $270,000
By Jena McGregor

(THE WASHINGTON POST) Just three months after the General Services Administration was found to have spent $823,000 on a Las Vegas conference, the agency’s acting administrator shared news with the agency’s inspector general about yet another costly employee event for the agency.

In November of 2010, the GSA spent nearly $270,000 on an award ceremony for good performers, which included spending $34,073.38 on catering and room rental charges, $28,364.45 for “time and temperature picture frames” and $20,578.24 for 4,000 “drumsticks” given out to employees.

Translation: Our Monetarily Sovereign federal government, which has the unlimited ability to create dollars, pumped a million of those dollars into the U.S. economy — an economy starved for dollars. The dollars were received by catering firms and their employees, hotels and their employees, picture frame makers and their employees and drumstick manufacturers and their employees.

“This sounds almost unbelievable to have this kind of waste reported when we are running trillions of dollars in debt,” said Congressman John Mica (R-Fla.), according to the Associated Press. Rep. Nick Rahall (D-W.V.) sounded a similar note: “It is deeply troubling to learn that more than a quarter million dollars in hard earned taxpayer money was wasted so that certain GSA employees could congratulate themselves.”

Translation: “Yes, we in Congress know that taxpayers really don’t pay for federal spending. In fact, even if federal taxes were $0, Congress could spend as always. After all, we create the dollars at will.

But we sell this nonsense to voters, who don’t understand the difference between Monetary Sovereignty and monetary non-sovereignty, so we can pull dollars out of the lower 99% income group.

“And as for self-congratulation, you know how Congress hates that.”

They’re right, of course. But spending money to recognize good performance, on its own, is not necessarily wasteful. Rewards for good performance—whether in the form of some kind of recognition, bonus, or extra time off—is a common cost for any organization. Government employees, like their private-sector peers, deserve some level of reward for a job well done.

Translation: They’re wrong of course. But why spend all that time and energy setting up silly events, when what the people really need these days is a few more dollars in their pockets?

A GSA statement notes that, “under the new GSA leadership, this event and type of spending is not tolerated. As of April 2012 all spending for events, including training conferences, leadership events, team building exercises, award ceremonies, were suspended.”

Translation: “Congress doesn’t want us to take trips, attend conferences and do other silly, useless, time-wasting things, as that is the exclusive preserve of Senators, Representatives and the President. So, while Congress foams at the mouth to look ‘fiscally prudent,’ we’ll find a couple of scapegoats to punish, and be done with it.”

Bottom line: One million was added to the economy, a tiny but real benefit, costing nothing. Congress is outraged about this “waste.” The problem is, the money didn’t go to friends, family and other insiders.

“Waste” is money that benefits owners and employees of hotels, restaurants, picture frame makers and drum stick manufacturers. “Waste” is any money that doesn’t benefit Congress persons or their re-election.

Our economy could use another trillion dollars of federal “waste,” so at long last, we could climb out of this recession.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

–Actually, the 2nd Amendment doesn’t legalize private gun ownership, but so what? There is a solution to gun violence.

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●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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Jesus: “all they that take the sword shall perish with the sword.”
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James Eagen’s rampage in Colorado will lead to more debate about the availability of guns in America, the world’s gun ownership capital. And this debate will lead nowhere. (But there is a solution, and you can see it near the bottom of this post.)

The May 21, 2010 post “Is gun control possible?” gives several reasons why gun control is not possible, some of which are:

1. Millions of Americans want guns. Prohibition of something people want never works.
2. There is widespread belief that anti-gun laws leave criminals armed and honest people unarmed.
3. Guns also have a legitimate use in hunting.
4. Most cities do not have fully staffed, fully trained police to enforce gun control. Money has gone elsewhere.
5. The Supreme Court ignores the beginning phrase of the 2nd Amendment.
6. Gun manufacture, import and sales are profitable.

1) Prohibition (of alcohol) didn’t work. Prohibition of recreational drugs doesn’t work. Prohibition of guns will not work. Mayors of gang-infested cities beg Congress for help in outlawing guns, but history shows that no law will prevent people from obtaining guns. What people want, people get.

2) The NRA says, “If guns were outlawed, only outlaws would have guns.” By definition, they are right. It’s doubtful whether the comparatively tiny number of personal defenses by honest gun users, justifies the enormous number of murders by criminals. Yet, I can empathize with a person, living in a high-murder area, wanting a gun for self protection. I don’t own a gun, but if I lived in a gang-controlled neighborhood, I probably would buy one.

3) Hunting for food is legitimate for an omnivore or a carnivore, like us. But hunting for “sport” is disgusting. Where is the “sport” in killing an unarmed animal? Personal opinion: Sport hunting is for cowards and sadists. And do you “sportsmen” really need an AK-47 or Kalashnikov to kill a rabbit or a duck?

4) Chicago was home to one of the most murderous neighborhoods in America. It was called Cabrini Green, ironically named after Mother Cabrini. For three weeks, in 1981, then Mayor Jane Byrne, moved into Cabrini Green. She was surrounded by police. For that period, murders ended, demonstrating that sufficient numbers of police greatly can reduce the murder rate in even the worst area.

Unfortunately, cities are not Monetarily Sovereign, so cannot afford “sufficient numbers” of police. And, of course, there is the social question of whether living in a police state would be an improvement over living in a murder state.

5) Our Supreme Court is blessed with self-proclaimed “Originalists” – most notably Antonin Scalia and Clarence Thomas – who believe their appointed mission is to read the minds of the Constitution’s framers, and divine their original intent, regardless of subsequent events. They are of the “If-you-don’t-like-the-Constitution,-change-it” mentality, conveniently ignoring reality — the extreme difficulty of changing it.

The fact is, Scalia, Thomas et al are not Originalists. They are “Originalists-when-convenient.” They are politicians — members of the far right — dressed in black robes, rather than the white robes of that other far right group.

Contrary to the Supreme Court’s and public’s perception, the 2nd Amendment to the Constitution does not read, “The right of the people to keep and bear Arms, shall not be infringed.” No, it reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

Question: If the authors of the Constitution wanted everyone to have guns, why didn’t didn’t they simply write: “The right of the people to keep and bear Arms, shall not be infringed.” Why did they feel the need to reference “a well regulated Militia”?

And lest one believe the framers of the Constitution just tossed in the words “well regulated Militia” as meaningless garbage, “Militia” is mentioned elsewhere in the Constitution — and given specific meaning:

Amendment 5 – Trial and Punishment, Compensation for Takings – No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger

And

Section 8. – Congress shall have the power to: Provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions.
and
To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress

And

Section 2 – Civilian Power over Military, Cabinet, Pardon Power, Appointments – The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States

A normal reading of the Constitution says that the well regulated Militia is a group or groups, organized, well regulated, trained, armed and disciplined by Congress, and which the U.S. may employ, and for which the States may appoint officers and provide training, and which the President may call into service.

Does that sound like your neighborhood gang-bangers? Does that sound like hunting? Does that sound like a guy who wants a gun for protection? Are you, your family, your friends and neighbors in a well regulated Militia that is organized, trained and disciplined by Congress and whose officers are appointed by your state? If not, the 2nd Amendment does not include you.

Sadly, our “Originalist” Supreme Court has decided that when the framers of the Constitution wrote “well regulated militia,” they really meant, “unregulated individuals, not in the Militia.” How’s that for “original intent”?

Then, there is the question about what the framers mean by “Arms”? Did they mean the aforementioned AK-47s, or did they mean the single-load muskets that were used back then? What was the original intent? Wouldn’t muskets have more likely been in the minds of the framers?

Today, laws prohibit ownership of automatic weapons, bazookas, hand grenades, cannons and other powerful weapons. So clearly, even our self-proclaimed “Originalists” understand the need for some weapon restrictions. So, why not restrict everything but muskets? (Not that this prohibition would eliminate guns. It wouldn’t. But at least it would eliminate the phony legal justifications for guns, based on an intentional misinterpretation of the Constitution.)

6) And now we get to the crux of the problem: The huge profitability in gun and ammunition manufacture, distribution and sales. Consider any product so demanded by the public it approaches addiction, and add to that the great profits in manufacture, distribution and sales, and it would take a harsh law and strong enforcement to reduce usage. Recreational drugs and alcohol fall into that category. So do guns.

But what if the manufacture, sales and distribution of guns and ammunition were not profitable? What if the risks outweighed the profits? Might approaching the gun debate from the front end (manufacture), rather than from the back end (user), accomplish what typical gun control laws cannot not, even if our Originalist Supreme Court allowed every man, woman and child to carry a gun?

I suggest that Congress and the individual states pass an “aid and abet” law that reads:

“If a gun of any type and/or ammunition for that gun, is used in the commission of a felony, the manufacturer, distributor, importer and/or supplier of that gun and/or ammunition, shall be liable, civilly and criminally, in equal measure with the perpetrator of the felony.”

This means:

*If you make a gun or ammo that is used in a felony, you can be sued in civil court and tried in criminal court. (This is a cousin to the “dram shop” laws, making a tavern owner liable for damages where intoxication was at least one cause of the damages.)
*If you sell or give a gun or ammo to anyone who uses them in a felony, you can be sued and tried.
*If you sell or give a gun or ammo to anyone who subsequently sells or gives a gun to anyone who uses that gun or ammo in a felony, you can be sued and tried. There is no limit to the length of the liability trail.

So “Originalists,” you can say the Constitution allows all citizens to own guns, despite not being in a well regulated Militia. No problem. You NRA folks can own all the guns and ammunition you wish. However if you give or sell your guns or ammunition, and those guns or ammunition later are used in a felony, you pay up big time. It’s lawsuits and jail for you.

Within short order, all guns and ammunition will be sold only to the federal government. No one will dare sell or give a gun or bullet, to any private person.

Problem solved.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

–Preventing the fiscal cliff. Increase taxes while not increasing taxes. The “loophole” solution.

In the previous post, “Congress makes astounding discovery: Reducing deficits (aka austerity) causes recessions,” we saw how Congress and the President “discovered” that if taxes were increased and spending reduced, we would fall over the “fiscal cliff.”

We also noted that Congress and the President still want to reduce the deficit, though this would require the very spending cuts and tax reductions that would lead to the “fiscal cliff.”

Finally, we showed that deficit reduction would cause the “fiscal cliff,” because it would reduce money supply growth. GDP = Federal spending + Private Spending and Investment + Net Exports. Reduced federal spending reduces GDP. Increased taxes reduce Private Spending and Investment.

Mathematically, increased deficits are necessary to grow the economy.

When I called this to the attention of my favorite editor, Bruce Dold of the Chicago Tribune, he wrote back: “The big picture here is that while we need spending cuts and revenue hikes — in a ratio of 3-to-1 or 4-to-1, we think — losing all of this liquidity at once would torpedo the economy.”

Incredibly, he says losing liquidity is a good thing for the economy (Yikes!), so long as it’s done slowly. He’s bothered only by the “at once” aspect. But he also said, “We had hopes for yet another plan, which didn’t get much ink: a Go-Big bipartisan proposal to reduce expected deficits by more than $4 trillion over 10 years.”

I guess losing $4 trillion of liquidity in 10 years is slow enough for him. You just can’t make this stuff up.

In that vein, Congress still wants to increase taxes, but not by increasing taxes, overtly. Rather they want to cut “loopholes.”

New York Times Tax Loopholes Block Efforts to Close Gaping U.S. Deficit
By JONATHAN WEISMAN
Published: July 20, 2012

WASHINGTON —On Capitol Hill, lawmakers casually point to closing “loopholes” as the answer to much that ails the country. Negotiations to avoid automatic military spending cuts in January, to enact sweeping deficit reduction and to lower corporate and personal income tax rates all hinge on closing unidentified loopholes.

Translation: “. . . avoid military spending cuts. . . ” increases the deficit. “. . . lower corporate and personal income tax rates . . . ” also increases the deficit. But Congress wants to do these things while it . . .”enacts sweeping deficit reduction. . .” Got it?

Federal tax receipts are reduced by more than $1 trillion a year by various tax deductions and credits, known as tax expenditures, often tied to a policy aim. Ending them would nearly eliminate the federal deficit, which is projected to be $1.2 trillion in the current fiscal year.

Translation: “We know that raising taxes hurts the economy. And we don’t want to be seen as the guys who pushed the economy over the “fiscal cliff.” So we need a sneaky way to raise taxes, and we have found one. We have made everyone believe tax “loopholes” are bad. So we’ll eliminate loopholes, which will raise taxes, and no one will object. Smart, huh?”

But the three largest (loopholes) are as popular as they are expensive: the mortgage interest deduction has cost about $75 billion a year recently, the employer deduction for health care has cost $120 billion a year, and the charitable-giving deduction has cost $38 billion a year, according to the bipartisan Joint Committee on Taxation.

Translation: Oops. We hope the public doesn’t wise up to the fact that one man’s “loophole” is another man’s “legitimate deduction. Nah, why worry? The public never wises up.

Senator Richard J. Durbin, Democrat of Illinois, who is participating in deficit talks, said: “We have to invite the American people to be part of a conversation about how to rationalize this tax code, reduce its complexity, try to bring rates down in a reasonable way and still reduce the deficit.”

So here is my esteemed Senator who carefully walks both sides of the issue. He wants to reduce taxes, while not reducing taxes, and increase spending, while not increasing spending. Yes, he wants to cut the deficit, while not cutting the deficit, because everyone knows that cutting the deficit will send us over the fiscal cliff.

And that is why Durbin has been in Congress for thirty (!) years. He’s not ignorant. The voters are ignorant. He’s a fox.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

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