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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Here is what President Obama said regarding the federal deficit:

Mon, 11/14/2011 – Associated Press

“It feels as if people continue to try to stick with their rigid positions rather than solve the problem,” Obama said of the 12 members of the bipartisan deficit committee. . .

“My hope is that over the next several days, the congressional leadership on the supercommittee go ahead and bite the bullet and do what needs to be done, because the math won’t change. There’s no magic formula. There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees. We got to just go ahead and do the responsible thing.”

Obama spoke as lawmakers on the specially created committee appeared deadlocked with a Nov. 23 deadline fast approaching to find more than $1 trillion in deficit cuts or trigger harsh spending cuts across federal programs including the Pentagon.

Has greater ignorance of economics ever been expressed by a President than, ”There are no magic beans that you can toss on the ground and suddenly a bunch of money grows on trees”? Where does Mr. Obama think dollars come from? Is he really saying the federal government is not Monetarily Sovereign and does not have the unlimited ability to pay its bills? Is he really saying federal finances are limited as are personal finances?

I simply cannot believe that a Harvard graduate, a seemingly otherwise intelligent human being, surrounded by the best minds in America, could be so unremittingly ignorant about the most important subject of his administration. And because I can’t believe it, I think there is an underlying cause, and that cause is crass politics.

As I see it, he probably understands the foolishness of his comment, but is trying to appeal to his audience, which repeatedly has been told the deficit is too high and the rich should be taxed. Mr. Obama displays neither the courage or the honesty to tell them the truth, lest they not vote for him. He would much prefer to make the nation suffer than risk his election loss – at least, that’s my take on it. What else could it possibly be?

As I’ve said previously, a person who would injure America for his own personal benefit – that’s the definition of a traitor. So I award President Obama 1 traitor symbol:

Anyway, in the unlikely event he and/or his followers one day might read this post with minds open to learning, along with spirits open to lifting their fellow Americans, here is a simple formula they might understand, accept or reveal to the world:

A= B + C

For those who know basic algebra (I assume President Obama is one of them), it means whatever you do to the right side of the “equals” sign, also is done to the left side. So, if you decrease B without increasing C equally, A will decrease. Basic algebra.

Turning to our economy, how do you know whether it is shrinking or growing, and by how much? The most often used measure of economic growth is GDP or Gross Domestic Product. It measures the dollar value of all final goods and services produced in a country, usually for a 12-month period. One formula for GDP is:

GDP = private consumption + government spending + gross investment + net exports

Again, whatever you do to the right side of the formula, automatically happens to the left. Government spending is one of the four parts of GDP. As in the A = B + C formula, if we decrease government spending, GDP will fall (i.e. the economy will shrink), unless we also increase gross investment, private consumption or net exports by an equal amount.

President Obama seemingly has no plan for how to would increase gross investment, private consumption or net exports. He speaks only of his desire to reduce government spending, which taken alone must decrease GDP. Further, I know of no mechanism by which a reduction in federal spending will increase investment or consumption.

In fact, federal spending reductions tend to reduce investment and consumption. A feedback mechanism multiplies the effect of federal spending changes. See the graph, below.

Looking incrementally, as you did in “Want to stimulate the economy” you can see that the peaks and valleys of the blue line (federal deficit spending) correspond with or precede the peaks and valleys of the red line (private investment) and the green line (personal consumption) by 1-2 years.

Going back to President Obama’s statement, what he really has said is: “We got to just go ahead and do the responsible thing: Reduce GDP, reduce our economy, have a nice big ‘responsible’ depression.’” If he succeeds, a depression is exactly what we will have.

I award President Obama three dunce caps, the 1078th dunce caps I’ve awarded. (He actually deserves more than three, but do you think dunce caps grow on trees?)

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

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

Changes in federal debt seem to foretell changes in per capita GDP.

The following chart depicts the entire period, from the time the U.S. became Monetarily Sovereign until the most recent data:

To get a closer look, I’ve divided the above chart into segments. Here’s 1972 – 1975:
Federal debt and real GDP per capita changes both peak in 1973.
Federal debt and real GDP per capita changes both trough in 1974

1975-1978:
Federal debt and real GDP per capita both peak in 1976

1980 – 1993:
Federal debt and real GDP per capita both peak in 1981.
Debt troughs in 1981; GDP troughs the next year, in 1982.
Debt peaks in 1983. GDP peaks the next year, in 1984.
Debt troughs in 1989; GDP troughs the next year, in 1990.

2000-2006:
Federal debt troughs in 2000; real GDP per capita changes trough the next year, in 2001.
Federal debt and real GDP per capita changes both peak in 2004

2007 – 2010:
Debt troughs in 2007; GDP per capita troughs in 2009
Debt peaks in 2009 then drops precipitously; GDP per capita rises in 2010.

GDP per capita data is not yet available for 2011, but total GDP direction may give us a hint, as it peaks in 2010:

In summary, changes in federal debt correspond with, or closely precede the same changes in per capita GDP. What does that tell you about the “super” committee’s efforts to reduce federal deficit spending?

(See a related post at “Oh, you want to cure unemployment?“)

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

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

Here is my (dumb?) question about Social Security and Medicare:

The “experts” tell us: More and more people will receive benefits from Social Security and Medicare. Current FICA payments are inadequate to cover these increased benefits. So, either FICA must be increased and/or benefits must be decreased. Otherwise, Social Security and Medicare will go bankrupt.

In short, Social Security and Medicare are self-funding entities. They even lend money to the government. They are separate from the rest of the U.S. government finances, which is why they can go bankrupt.

But . . .

Mr. President, you and Congress tell us the federal deficit is too high, and the federal government must “live within its means,” and one way to accomplish this is to cut Social Security and Medicare benefits.

Now wait a minute. You can’t have it both ways. If Social Security and Medicare finances are separate from the U.S. government, and these agencies could go bankrupt separately from the U.S. government, that means the federal government isn’t supporting them.

So my dumb question is: If the government isn’t supporting Social Security and Medicare, how can cuts in benefits help the government live within its means? And if the government is supporting them, how can they go bankrupt?

I look at it this way: My working adult child receives no financial aid from me. Her job doesn’t pay enough, so she either must cut her expenses or go bankrupt. How does her cutting her expenses help me live within my means?

It’s all so terribly confusing, Mr. President. Can you clarify this for me, before I award myself a dunce cap?

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

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

At the end of this post, I pose a question to the President of the United States and for Congress:

Obama urges supercommittee leaders to reach deal; warns against undoing consequences of failing to reach accord

Andrew Harrer/BLOOMBERG , By Rosalind S. Helderman, Published: November 11

President Obama called the Democratic and Republican chairmen of Congress’s special deficit reduction supercommittee Friday and urged them to reach a deal, as the panel’s deadline for agreeing on a strategy to slash the nation’s debt rapidly approaches.

The congressional supercommittee has less than two weeks left to agree on a plan to reduce the federal deficit and avoid harsh, across-the-board spending cuts to every government agency.
[…]
According to that agreement, if the committee of six senators and six representatives deadlocks, budgets will be cut automatically by $1.2 trillion over the next decade.

Half of those cuts would come from the Pentagon, a prospect daunting enough that leading lawmakers have suggested the cuts should be repealed. But the so-called sequester could not be undone without a sign-off from Obama, and he made clear Friday that he would not agree.

“The sequester was agreed to by both parties to ensure there was a meaningful enforcement mechanism to force a result from the Committee,” the White House said in a statement. “Congress must not shirk its responsibilities. The American people deserve to have their leaders come together and make the tough choices necessary to live within our means, just as American families do every day in these tough economic times.”

Translation of Mr. Obama’s comment: “Your income is down, and you must cut back on your spending. So I, your leader, will cut back on government payments to you. See? We’re in this together.”

It is frightening indeed, that the President of the United States of America does not understand the difference between the U.S government (Monetarily Sovereign) and American families (monetarily non-sovereign).

While the President wants to cut federal deficit spending, here is a snapshot of the past decade:

Mr. President, ladies and gentlemen of Congress: does this really look like an economy that needs cuts in federal deficit spending? Will reduced federal spending help increase health insurance coverage, reduce home vacancies, reduce unemployment, support national defense and reduce mortgage delinquencies? Really?

I award 3 dunce caps to the President for wanting to raise taxes while cutting Social Security and Medicare.

I award just two dunce caps to Congress for wanting to cut spending, but at least having the sense not to increase taxes.

(This brings my dunce cap deficit to 1075. Taking my lead from President Obama, I plan “to make the tough choices necessary to live within my means”, and cut back on my dunce cap spending “just as American families do every day in these tough economic times.”)

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

MONETARY SOVEREIGNTY