Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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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Recently I published a post titled, “The 3.5 billion stealth tax,” in which I criticized the federal government for forcing, or even accepting, repayments of loans to the private sector. I correctly said these repayments were identical to a tax increase, and would have the same negative effect on economic growth.

A reader disagreed, saying,

You generally seem pragmatic, so I would think you would be happy that the banks are paying back the funds – thus addressing the argument that this was a government handout / taxpayers are paying. The next time government intervention is needed, people can point to this as evidence that it doesn’t cost the government / taxpayers anything.“

He doesn’t think my facts are wrong; he feels that because people believe the debt should be repaid, we should not try to fight that widely accepted fiction, even if it will have negative long-term effects.

The problem with accepting a fiction is it always has long term, negative effects.

It’s true that most people were led to believe some cigarettes were “safer” than others (so kept smoking these “safer” cigarettes), and today most people have been led to believe taxes pay for federal spending (so they want reduced spending). But the former wrong belief led to millions of cancer deaths, and the later wrong belief continues to put a cancer on our economy.

According to the Washington Post

Paul Ryan betrays his own views on income inequality
Posted by Ezra Klein

On Thursday, the House of Representatives passed Rep. Paul Ryan’s 2013 budget proposal. The plan’s pleased author didn’t mince words. “We are bearing witness to history this week,” Ryan said.

But my thoughts kept returning to something Ryan said five months earlier. Upward mobility, Ryan said, is the real key to the “American idea.”

Two weeks later, in a 15-page report entitled “A Deeper Look at Income Inequality,” Ryan made his argument again. He seemed to admit a hard truth that Republicans often deny: that government programs for the poor are a crucial way of ensuring income mobility, and as they get squeezed, so, too, do the life chances of those born at the base of the income ladder.

But it is difficult to believe that Ryan’s budget was written by the same guy who wrote this paper. Because in Ryan’s budget, the cuts to Medicaid and other health programs for the poor are twice the size of those to Medicare. The cuts to education, to food stamps, to transportation infrastructure and to pretty much everything else besides defense are draconian. As for the tax reform component, it cuts taxes on millionaires by more than $250,000, but it doesn’t name a single loophole or tax break that Ryan and the Republicans would close.

In short, Ryan tells the absolute falsehood that cutting taxes demands cutting federal spending, and since most federal spending benefits the poor, programs that benefit the poor must be cut. And since most people do not understand the facts of Monetary Sovereignty, I suppose I should go along with the twin fictions that federal tax cuts require spending cuts, and federal deficits should be reduced.

If that would be “pragmatic,” then I will continue to be quixotic, and do my best to spread the truth: Taxpayers do not pay for federal spending, and federal money creation (aka “the deficit”) should be increased.

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

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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.
==========================================================================================================================================

The following graph is no surprise:

When Gross Domestic Product heads down, we have a recession — but not always.
And when the National Activity Index* heads down, we have a recession — but not always — except when it dips below -0.5%.

So how about combining the two indexes and see if we can get an “always” situation, that also may be appropriate to the current situation:

If we make the indicated calculation, we find that after the graph line drops significantly below 0.0, we always seem to have a recession. Will this continue? Are we headed for a recession before there will be a recovery? I don’t know, but the data are interesting, and a bit ominous, in light of where we are now.

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

*The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data.

The CFNAI corresponds to the index of economic activity developed by James Stock of Harvard University and Mark Watson of Princeton University in an article, “Forecasting Inflation,”(external-pdf) published in the Journal of Monetary Economics in 1999. The idea behind their approach is that there is some factor common to all of the various inflation indicators, and it is this common factor, or index, that is useful for predicting inflation. Research has found that the CFNAI provides a useful gauge on current and future economic activity and inflation in the United States.

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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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Chamberlain and Obama are known for appeasement, Chamberlain to Hitler and Obama to the Tea/Republicans. The pictures of Obama proudly signing the JOBS bill while House Majority Leader (Republican) Eric Cantor beams behind him, brings back memories of Chamberlain proudly waving his document of capitulation.

CBS News
Obama signs “JOBS Act” into law, calls it a “game-changer”
By Leigh Ann Caldwell
(CBS News) President Obama signed the bipartisan “JOBS Act” into law on Thursday afternoon, saying it will “remove barriers” for small businesses and will lead to job creation.

“New businesses account for almost every new job created in America,” the president said during a signing ceremony in the Rose Garden of the White House on Thursday. “That’s why I pushed for this bill.”

The “JOBS Act” (Jumpstart Our Business Startups Act) removes restrictions for small business and startups to receive broader access to capital and investors.

Translation: The JOBS act removes business restrictions, which Republicans always hate, even though those restrictions were not the cause of our recession or small business startup difficulties. .

The bill passed Congress with bipartisan support. Republican lawmakers, including House Majority Leader Eric Cantor, stood directly behind the president during the signing ceremony.

Translation: “Bipartisan support” means I did what the enemy wanted, so I’m sure they’ll cooperate with me in the future.

The law enables “crowdfunding,” which broadens the potential pool of investors, and it increases the amount the entrepreneur can initially raise. It also eases the ability of a small company to go public and allows entrepreneurs to advertise to the general public to gain investors.

Translation: It will erase restrictions on many phony investment schemes, while doing nothing for the economy.

… the president . . . (called) on Congress to adequately fund the Securities and Exchange Commission to oversee the new activity.

Translation: Now that I’ve given everyone’s front door keys to criminals, I ask a Congress that is in league with the criminals, to support the police, whose guns I’ve taken away.

The president said the activity is “subject to rigorous oversight” and the “SEC will play a vigorous role.”

Translation: The SEC did such a great job prior to the last recession, I expect them to do a similarly great job this time.

President Obama thinks of abject capitulation as a great victory of compromise, and the American people pay the price. Folks, don’t let the intentionally deceptive “JOBS” title fool you. This is a bad law.

America is not suffering from too much regulation. The jobs this silly bit of deregulation creates primarily will be for miscreants. When the President compromises with the Tea/Republicans, guard your wallet.

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: The more budgets are cut and taxes inceased, the weaker an economy becomes. 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.
==========================================================================================================================================

The opening paragraph of this article made me think that at last, Time Magazine knew the difference between monetary non-sovereignty and Monetary Sovereignty.

Time Business
Does the World Believe America Will Pay Its Debts?
By Christopher Matthews | April 5, 2012 |

If you spend any time reading about economics on the internet, you’re aware of the many virtual pamphleteers who loudly portend the impending downfall of the American government and global financial system in general. It’s become somewhat fashionable to proclaim America a banana republic, arguing that she is financing her debt with central bank purchases of government bonds, a strategy that is unsustainable and often ends in a blaze of hyperinflation and economic collapse.

No serious observer really believes that the U.S. faces this fate in the near term.

O.K., lookin’ good . . . except for that “unsustainable” thing. But, we can cut them some slack.

Perhaps much of this hyperbolic rhetoric is merely an effort to get the U.S. to reign in its debt – something, long term, it certainly needs to do. But a strand of this thinking has made its way into the mainstream and is distorting the debate about the federal government’s attempts to steer the economy out of a recession.

Huh? “Needs to do”? Why? “Reining in the debt” is the worst thing the government could do. The economy cannot grow without growing federal deficits, and though federal debt is a meaningless relic of the gold standard days, deficits are necessary (And no, debt is not the functional result of deficits.)

But they’re right that this debate does interfere with the federal government’s attempts to steer the economy out of a recession.

Lawrence Goodman opined in the Wall Street Journal last week that, “Demand for U.S. Debt Is Not Limitless.” In the piece, Goodman takes aim at those who have argued that demand for U.S. debt is strong, and that regardless of what the rating agencies say, the marketplace believes the U.S. will pay its bills.

Hilarious . . . or sad. Demand for debt is meaningless. If the U.S. did not sell one more T-security, it would have zero effect on the government’s ability to create dollars and pay its bills. Remember this whenever you think, read or talk about economics: There is no relationship between federal debt (i.e. the creation of T-securities) and federal bill paying. Zip, zilch, nada..

In particular, he highlights the “stunning” fact that in 2011 the Fed purchased 61% of the debt issued by the Treasury, up from negligible amounts prior to the 2008 financial crisis. This, he added, “not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.”

Deficits not only are necessary for economic growth (That’s the way the government creates dollars), but functionally do not cause debt. With a minor tweak in the law, there could be deficits without T-securities and there could be T-securities without deficits.

Most people don’t understand how a majority of the debt issued by the U.S. government last year could be purchased by an arm of the very same government. It is the effect of the much-talked-about “quantitative easing” program the central bank began in the wake of the financial crisis to suppress interest rates.

By purchasing these bonds, the Fed drives up the price of government debt and drives down the interest rate the government pays on that debt. The purpose of this is not to “subsidize U.S. government spending” as Goodman suggests, but to drive down rates for the rest us and stimulate the economy.

Correct. That is one way the Fed controls interest rates, especially long-term rates. Short term rates are controlled via the Fed Funds rate.

(Lewis Alexander, Chief Economist at Nomura Securities said) that nobody in American government is arguing that, in the long run, debt isn’t a problem. Both Democrats and Republicans have recently proposed budgets that would put us on a sustainable fiscal path . . .

What is a “sustainable” fiscal path? Is it a path on which the federal government always will be able to pay its bills and no federal check ever will bounce?

Not only are we on the path, but we’ve been on that path since August 15, 1971, when the U.S. government became Monetarily Sovereign.

Sadly, Time Magazine, Christopher Matthews and Lewis Alexander don’t understand that.

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