Tag: monetarily sovereign nation

–Quick prediction for the next two years

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

Here is a quick, overly simplistic prediction about what is likely to happen in the next two years. If you disagree (or even agree), feel free to add your own predictions.

1. The Democrats, fearing the weak economy will cost them the House and Senate, urgently will try to stimulate the economy before November.

2. However, stimulating the economy requires federal spending and/or reduced taxes, both of which add to the federal debt. Republicans, not wanting the economy to recover before the November elections, will object to any increases in the federal debt, falsely claiming it’s “unsustainable” and “our children will pay for it.”

3. Every stimulus plan put forth by the Democrats will be met with the threat of a Senate filibuster, plus objections by the media, the Tea Party and all others who have been hypnotized by the debt hawks.

4. The Democrats, paralyzed with fear about the federal debt, then will talk about increasing federal taxes on the “rich,” so as to be revenue neutral. This will add to the Democrats’ stigma as the “tax and spend party.” Small business owners, the primary economic engine in America, will find themselves defined as “rich,” so will become even more reluctant to hire and invest. Worse, because revenue neutral plans do not add money to the economy, they will not prove to be stimulative.

5. The economy will not recover significantly, and may even regress. The voters and the media will blame the Obama administration for not creating more jobs, but will offer no non-debt solutions, as there are none. Voters, wanting stimulus without deficits (in other words, magic), will vent their frustration on incumbents, giving Republicans enough representation in both Houses to stifle any Democratic initiatives, but not enough representation to advance Republican initiatives. Further, since the Republicans have been vociferous about deficits, they will have left themselves no way to stimulate the economy.

6. Within two years, President Obama will blame the lack of economic growth on Republican recalcitrance, thereby setting the stage for a Democratic comeback in 2012.

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

No nation can tax itself into prosperity

–Debt madness in the media

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

The media have made America’s voters insane. Any program designed to stimulate the economy is rejected because it would “add to the debt” (which is the only way to stimulate the economy) or would “be paid for by our grandchildren” (a monstrous lie).

Thus we have the ridiculous situation in which banks are criticized for not lending enough (i.e., for giving the private sector too little debt), while the federal government is criticized for having too much debt. Think, people! Do you really believe the solution to our problems is for the private sector to take on more debt, while the federal government reduces its debts?

On the one hand we have the private borrowers, already overburdened with bad debt, and falling into bankruptcy every day. On the other hand we have the federal government, which can support a debt of any size, and which does not even use tax money to support spending, and which as a monetarily sovereign nation, cannot go bankrupt. Which do you think should take on more debt to stimulate our economy?

It is absolute madness to ask for more private deficit spending and less federal deficit spending. Yet, that is what the media, the politicians and the obsolete economists do.

In the post, Is federal money better than other money, I demonstrated that while reductions in federal debt growth immediately precede recessions, increases in private debt growth also lead to recessions. The media and the politicians, who want more private debt growth and less federal debt growth have it exactly backwards.

Rumor says the Obama administration soon will suggest Fannie and Freddie give “upside down” mortgage holders a break, paid for by the federal government. If true, you will hear a great protest that this will increase the falsely termed “unsustainable” federal debt. The protesters prefer that the private sector bear this debt, which for the private sector, truly is unsustainable.

I’m not sure when it became more “prudent” for the private sector to suffer bankruptcies, than for the federal government to create money, but I pray, for the sake of America, that the media, politicians and sleeping economists come to their senses. This backwards thinking has caused terrible misery, as backwards thinking always does.

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

No nation can tax itself into prosperity

–America, wake up

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

“Congress to Weigh Options for Reducing Federal Debt

Hard choices on Social Security, Medicare, defense and taxes can’t be avoided much longer. By Richard DeKaser, Contributing Economist, The Kiplinger Letter
July 30, 2010

Is Washington serious about tackling the federal debt? […] The key is Obama’s debt commission. Its short-term mission is to balance the budget by 2015 — not counting interest on the swelling national debt. That would slash the annual deficits by two-thirds, to about $500 billion. The long-term goal: Achieve fiscal sustainability, which is generally seen as holding debt at something under the equivalent of 65% of gross domestic product (GDP).”

Let’s get this straight. With a balanced budget, even minuscule inflation would reduce the amount of real money in the economy. Historically, recessions follow low deficit growth, and recoveries correspond with high deficit growth. So why aim for a balanced budget? No evidence, just anthropomorphic economics disease.

What makes fiscal sustainability 65% of GDP? No evidence. The DEBT/GDP ratio is meaningless – an apples/oranges comparison with zero significance. And where did 65% come from? Nowhere. Just popped into someone’s head. And that “pop” will cost you plenty.

The ignorant article continues:

“Recommendations in four areas are likely:

“Social Security. . . .Gradually raise the retirement age to 68, calculate benefits using the Consumer Price Index instead of wage inflation and shave a half point from annual cost-of-living increases would knock $548 billion off the deficit in 2040, for example. Another possibility is to raise the cap on earnings subject to payroll taxes, perhaps to 90% of earnings for everyone. That would juice up incoming revenue.”

If someone told you they would cut your Social Security payment, would you at least ask, “Why?” And if the answer were, “The government can’t afford it,” would you at least say, “Show me the evidence”? You never have seen any evidence except for unsubstantiated statements that the debt is too big. This is the same answer you have received since 1971. Wrong then; wrong now.

The ignorant article continues:

“Health care. . . apply a means test for Medicare and revise the recently passed health care law.” Yes, we’re going to cut your Medicare payments, reduce your doctors’ payments and require you to prove you need the money. Do you care? Naw. And don’t even bother to prove the government can’t afford the expense. I trust you. Just take my money and reduce the number of doctors. I love pain.

More from the ignorant article:

“Other government spending. . . A full-scale review is already under way, including plans to forgo or scale back big weapons systems — the F-35 Joint Strike Fighter, the C-17 transport and more. More base closings, especially abroad, are also possible.” Either we need these things for defense or we don’t. Or are you saying the unsupported notion that the government is broke trumps American defense initiatives?

And finally, my favorite ignorant paragraph:

“Taxes. . . rates will surely be raised at some point. Holding them steady for a year — for all but high incomers — costs $95 billion. For 10 years, the tab climbs to $2.46 trillion. Other tax options on the table include limiting itemized deductions and imposing a value-added tax.” Yes, debt hawks, raise my taxes. You don’t provide evidence, but you are much smarter than me, so go ahead, take my money. I don’t care.

The ignorant article continues, “All of the options are extremely painful, and lawmakers’ instincts will be to balk and refuse to budge.” And with darn good reason, because these options not only are painful, but are incredibly harmful and foolish.

America, wake up. These fools want to steal your money, your health, your defense and your lifestyle. Don’t let them do it. Demand proof they know what they’re talking about. Demand proof the federal deficit and debt are unsustainable. If someone wants to steal from you, vote them out.

Or you can just lie back, spread wide and say, “Take me.”

By the way, my $1000 offer still is unclaimed. I wonder why.

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

No nation can tax itself into prosperity

–Debt is bad; debt is good. Take your pick.

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

There is no functional difference between a federal tax cut and a federal spending increase. Some might argue that federal spending is superior or inferior to private spending, though evidence for either is slim, and either has the same result. They both increase the amount of federal money in the economy. (Mistakenly called the federal “debt.”)

Further, increasing the federal money supply stimulates the economy, and decreasing the money supply depresses the economy. So it is both laughable and sad to see how debt hawks squirm between wanting a lower debt, higher taxes and lower taxes, along with less federal spending, more spending and improved GDP. As the song says, “Something’s gotta give.”

Here are quotes from the always confused editors of the Chicago Tribune, in the editorial dated 8/1/10, titled “Out of debt.”

“. . . Democrats and Republicans are very good at doing one thing: running up the debt. That’s the reason for the National Commission on Fiscal Responsibility . . . to find ways to stem the red ink.” O.K., so federal deficits are bad.

“. . . at this stage (a tax increase) would be a terrible mistake, not only for the health of the economy, but for the nation’s long-term fiscal health.” O.K., so federal deficits are good, in both the short term and in the long term.

“More likely, Congress and the president would spend every nickel (from a tax increase) – and then spend some more.” Oh, oh. Now federal deficits are bad, again.

“Nor does it make sense to place a new (tax) weight on the economy when it is already struggling to grow.” Woops, deficits are good, again.

“Congress can’t afford to indulge the notion that endless borrowing is a sustainable strategy.” So deficits are bad.

“The wisest option is to extend tax cuts for a year . . . “ Deficits are good

“. . . then see what the deficit commissions proposes to curtail our addiction to debt.” Deficits are bad.

“ . . . Erskine Bowles suggests a healthy ratio of $3 dollars in spending cuts for every $1 in tax increases . . . it’s essential if we hope to foster lasting prosperity . . . “ Deficits now are awful. Mr. Bowles “scientific” suggestion equals $4 in spending cuts or $4 in tax increases, or anywhere in between. Guarantee: He has zero data to support his 3/1 ratio, but hey, who need facts?

“ . . . while sparing the taxpayers of tomorrow an unsupportable debt burden.” Deficits are bad.

And here is my favorite: “Coupled with spending discipline, revenue measures can be on leg of the journey back to fiscal sanity. But if they are the first and only leg, they will be a fatal detour.” Huh? They are saying spending cuts and tax increases are good, but first we should have spending increases and tax cuts!

All of the above is classic debt hawk double talk. Federal debt is a taxpayer “burden,” but necessary to grow the economy, but “unsupportable,” even though taxpayers don’t pay for federal debt, and the government has the unlimited ability to service its debt.

That kind of muddy thinking is what needlessly has extended this recession and the unemployment that goes with it. Ignorance may be bliss, but it sure is harmful. As the theme at the top of this post reads, “The debt hawks are to economics as the creationists are to biology.”

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

No nation can tax itself into prosperity