Tag: monetarily sovereign nation

–Which adds to federal debt — federal spending or federal borrowing?

The debt hawks are to economics as the creationists are to biology.

Which adds to the federal debt — federal spending or federal borrowing? Before you read further, think about this question and your answer.

The federal government’s finances are nothing like yours and mine, which is why the economy is so counter-intuitive. Most people worry about the federal debt. They are influenced by the media and the pundits, who also worry about the federal debt. And in turn, they are influenced by mainstream economists, who as college students, were taught to worry about the federal debt. This “debt-worry” translates into “spending-worry,” so we hear continual calls for less government spending. But does federal spending really add to federal debt?

You and I cannot print money. So, before we spend, you and I must have sources of money. We either must have money in hand or we must have a ready source of borrowing, the most popular of which is a credit card. Without a source of money, you and I cannot spend. The states counties and cities are in the same predicament. Without a source of money, they cannot spend.

The federal government is different. Or it can send you a check, and when you deposit that check, your bank will mark up your account and the federal government will mark up the bank’s account, and it can do this endlessly, without having any source of money.

When the federal government spends, money is created from nothing. But no debt is created, at least not the federal debt referred to in “debt clocks” or by media editors.

So what does create the federal debt? The creation and sale of T-securities. The federal government not only has the unlimited power to create money from thin air, it also has the unlimited power to create T-securities from thin air, and then exchange these T-securities for dollars it previously created from thin air.

There are two separate processes, unrelated by function, though related by law. Process #1 is federal spending, which requires the creation of dollars by printing currency or by crediting bank accounts. Process #2 is federal borrowing, i.e. the creation and sale of T-securities. Functionally, either of these processes can take place without the other. The federal government can spend without borrowing, and it can borrow without spending.

While federal spending leads to the Deficit (the difference between spending and tax receipts), federal borrowing leads to the Debt (the total of outstanding T-securities). In this way, the federal debt would not necessarily be the total of federal deficits, except for an obsolete law that requires it.

By law, the U.S. Treasury must sell enough T-securities to equal the deficit – the difference between federal spending and federal tax receipts. This law is a relic of gold standard days, when the federal government did not have the unlimited ability to create money. Back then, dollars had to be matched by gold, and so were limited by gold supplies.

But for this law, there would be no need for federal borrowing and there would be no federal debt. The government simply would spend by creating money, i.e. by crediting bank accounts.

In summary, federal spending does not add to the much feared, often maligned federal debt. Instead, the federal debt is created by an obsolete law, which requires T-security creation to equal federal deficits. So debt-worriers, there is no need to cut federal spending. Merely change that needless law. No law; no debt.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Japan, Ireland, Greece: Facts vs. Mainstream Economists

The debt hawks are to economics as the creationists are to biology.

The mainstream economists never change, but my hope is if I continue to demonstrate the inconsistencies of mainstream economics, eventually the word will get to the politicians, the media and the public. Here is a quick sampling of 10/26/10 AP articles:

“TOKYO — Japan’s Cabinet approved an extra budget to help finance $63 billion of stimulus spending aimed at spurring the country’s lackluster economy as it battles deflation and a strong yen.”

The CIA’s World Factbook 2010 shows Japan’s Debt/GDP at 189%. According to mainstream economics (aka debt-hawk economics), that Debt/GDP ratio should force a terrible inflation on Japan, and its debt should be “unsustainable.” But Japan is battling deflation, and seems to have so little difficulty “sustaining” its debt. And it will spend an additional $63 billion. See the disconnect?

The same source lists the Debt/GDP ratio for the U.S. as 53% (More recent data from the Treasury shows this to be 66%), far lower than Japan’s. Yet, the debt hawks claim – without any supporting data — the U.S. federal debt must be reduced by raising taxes and/or reduced spending, either or both of which will injure the economy.

But wait, there’s more. According to mainstream economics, all that borrowing should have forced Japan’s interest rates up, which should be bad for economic growth. But Japan’s benchmark interest rate is 0%, as low as it has been in 5 years. The reason: Japan’s benchmark interest rate is not market-derived; it is set by the Japanese government, just as the U.S. Fed Funds rate is set by the Fed.

“DUBLIN — Ireland’s government said it must slash euro15 billion ($20.8 billion) from its annual budgets in a four-year plan designed to bring Europe’s highest deficit back within EU limits.”

The EU demands that its nations have a Deficit/GDP ratio below 3%. However, as Ireland reduces stimulus spending, GDP also will fall. So, Ireland must chase a moving target, in which reductions in the numerator cause reductions in the denominator. Visualize a dog chasing its tail, and you have the EU mainstream economics version of Ireland.

“ATHENS, Greece — Greece’s central bank governor says the government must not relent in its planned deficit-cutting efforts but warns against further tax increases, which would deepen the recession.”

Just so we understand, tax increases will “deepen the recession” (by removing money from the economy), but deficit cuts, which also will remove money from the economy, are O.K.???

And this is what the science of economics has become.

There are two and only two solutions for Greece and Ireland. Either,
1. Return to Monetary Sovereignty by re-adopting your sovereign currency
or
2. Have the EU create a true United States of Europe whereby the EU would supply euros to its member nations as needed.

There are no other solutions. Oh yes, and stop demanding that your member nations commit economic suicide.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–How to save your struggling company: A simple system.

The debt hawks are to economics as the creationists are to biology.

Recently, I received a note reading, “I was fascinated to see that you are in the turnaround business. I have been buying distressed companies for many years. I was wondering if you have written any articles or books on managing companies.”

Yes, I spent most of my business life resurrecting troubled companies, and though the effort is difficult in execution, the process itself is quite simple:

Step 1. Search for the one niche your company can dominate. It’s important to be the dominant leader in your area.

Example: I built a struggling, legal-supplies company, selling all sorts of desk objects and various other supplies lawyers use, into America’s largest used law book seller.
Example: I built a struggling software company, that created software on demand, into America’s largest business simulation software company.

In every case, I minimized or completely eliminated the ancillary businesses that did not match our focused objective. Convincing my associates to get rid of their beloved ancillary businesses may have been my most difficult task. They always believed these businesses added income, while in fact, these side businesses stole time and money from our focus.

It is important that the niche be narrow enough for you to dominate. For instance if used law books had not been a niche we could dominate, I would have narrowed further, perhaps to used books from only one publisher or only books for certain states. Niche focus is the key to success, but it requires discipline. Most business people cannot handle it, emotionally. It’s the “big fish in a small pond” idea.

Step 2. Mass market to your target audience. This included direct mail, Email (aka spam), telephone marketing, Google and Yahoo advertising, some magazine advertising. I do not recommend trade shows, direct personal sales or any other sort of marketing that requires travel (too time consuming and expensive). Every day, I was able to contact several thousand people via mass marketing at minimal cost, while the best a traveling person might do is reach a few people at high cost.

Here again, niche marketing may be needed. For instance, market only to one state or one region of the country. It is important to become the leader. There are many benefits that accrue to leadership, so being #1 in Illinois provides better opportunity for growth than does being #10 in America.

And that’s it. The system is deceptively easy, but requires great discipline. Every day, temptation in the form of side businesses or personal marketing will tempt you, destroying your focus. You will be reluctant to get rid of those products and services that seem to “fill out your line,” but really take time and money away from your focus.

In short, focus, focus, focus. Focus on a narrow product or service niche you can dominate. Focus on a narrow customer description you can reach with mass marketing. Your goal: To become the biggest in a defined area at one thing.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Here is the financial solution for your state, county and city

The debt hawks are to economics as the creationists are to biology.

Illinois is broke. Your state either is, or soon will be, broke, too. Illinois’s 13 million population owes $13 billion. Like all states, counties and cities, Illinois is not monetarily sovereign, so unlike the federal government, which is monetarily sovereign, states cannot create money to pay their bills. Illinois is far behind on payments to the many vendors who supply services to its citizens. The state has no hope of continuing its “borrow now, pay later” system.

Yes, Illinois may be the most dishonest state in America. Several of its recent governors have gone to jail, and the government is run by swindlers. Although the reprehensible head of the Democratic party in this traditionally Democratic state, Mike Madigan, can be blamed for much of the financial chaos, there is plenty of blame spread around.

We can begin with the voters, who inexplicably continue to vote solid Democratic, despite the astounding record for corruption this party has amassed. Not only is Illinois thoroughly crooked, but so is Cook County and Chicago, also Democratic strongholds. Chicago aldermen traditionally go to jail after a few years in office, and Mayor Daley is the classic Sgt. Schultz, the guy who repeatedly said, “I know nothing, I see nothing.”

Daley sold income-earning city assets, then spent the money, putting Chicago ever deeper in the hole. (Pity the next mayor). And don’t ask about Cook County Board President Todd Stroger, who was appointed by his father after his father died (really), and instituted a “friends and family” system of patronage hiring. With all this, voters march to the polls, like little automatons, pull the Democratic lever, and march back out to complain. (In all fairness, Illinois has had its share of venal Republican governors, too, though these guys were mere minnows in a sea of sharks.)

Nevertheless, though the state, its largest county and its largest city all are run by criminals, even a theoretically honest state cannot survive on tax receipts alone. Because monetarily non-sovereign governments cannot create money, inflation forces them all to obtain money from outside their borders.

“Outside” earnings can come exports of goods and services. Example: Salaries earned by Evanston, Illinois residents, paid by Chicago firms. Or outside earnings can come from government support. Example: Illinois pays some Chicago Transportation Authority expenses. And this later approach demonstrates the only way to save Illinois and all the other states.

If the U.S. federal government would give Illinois just $1,000 for each resident, the state debt would disappear. And if the federal government continued to give Illinois an ongoing $500 for each resident, Illinois could pay its cities and counties enough to achieve better schools, better roads, better transportation and other improvements in human benefits, while reducing the onerous property, income and sales taxes, that hurt Illinois’s economy.

Yes, Illinois’s crooked politicians will continue to steal, and Illinois voters will continue to elect them, but state poverty hasn’t stopped the politicians, anyway. And though Illinois politicians uniformly promise to reduce the debt, this requires self destructive taxes and spending cuts. Austerity is a path to disaster. So, the sole financial solution for Illinois and for all states, a solution that will improve the lives of its residents and of all America’s residents, a solution easily affordable by the federal government, is per capita support for all states.

Without increased support to states, America’s quality of life will decline, as schools, roads, health care, nursing homes, housing, courts, police and fire protection, parks and businesses all disintegrate. There is no other solution. Mathematically, America’s states, counties and cities cannot do it themselves. The federal government must do it.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”