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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For years I’ve said the euro nations have two, and only two, solutions to their economic problems:

1. Federalism (The U.S. system): The European Central Bank give (not lend) euros to euro nations
or
2. Monetary Sovereignty: Each nation return to its sovereign currency.

There is widespread feeling these two solutions would be too chaotic compared with austerity and loan “modification” (aka default).

Yahoo News
Analysis: Greek default may be gift to other euro strugglers
By Mike Dolan | Reuters

LONDON (Reuters) – Greece’s tortuous debt restructuring and threat of retroactive laws to compel reluctant creditors heaps regulatory risk onto investors but may make voluntary sovereign debt revamps more attractive and likely for other cash-strapped euro sovereigns and their creditors.

Thursday could mark a climax of the Greek debt workout with private creditors due to respond to an offer that would see them effectively write off more than 70 percent of the face value of their bonds in return for new debt with a series of sweeteners.

With Greek government bonds currently trading at less than 20 cents in the euro and the risk of a total wipeout if Greece decided to unilaterally refuse all payments, a majority will likely go for it. Legally-binding majorities are another matter.

Athens said this week it aims for 90 percent acceptance but if the takeup is at least 75 percent then it would consider triggering so-called “collective action clauses” retroactively inserted into the bonds issued under Greek law — about 85 percent of the 200 billion euros being restructured.

Those clauses in practice force all affected creditors to comply.

But it’s this distinction between debt issued under domestic laws and that sold under internationally-accepted English law that some say has consequences for other troubled euro nations eyeing Greece’s so-called Private Sector Involvement, or PSI.

In essence, English-law Greek bonds, as is the case for many emerging market sovereigns, trade as if they were senior to local-law debt — at almost twice the price in fact right now. That’s because the terms of foreign-law bonds cannot be altered by an Athens parliament, and agreement for debt swaps is needed bond-by-bond, unlike local laws that aggregate majorities across all debtors and make blocking minorities more difficult to muster.

A paper released this week by Jeromin Zettelmeyer, deputy chief economist at the European Bank for Reconstruction and Development, and Duke University Professor Mitu Gulati reckons this legal gulf could well encourage other debt-hobbled euro zone countries and their creditors into mutually acceptable and beneficial debt restructurings.

This would involve an agreed switch in the legal status of the debt in return for relatively modest haircuts.

“Holders of local-law governed bonds in other euro zone countries that are perceived to be at risk might want to make a trade for English-law governed bonds,” the economists wrote. The sovereign gets a chance to reduce a crippling debt burden while bondholders get greater contractual protection in any future restructuring.

Given that the Greek precedent of retroactive legislation vastly increases the allure of foreign-law bonds, which credit rating firm Moody’s says now make up less than 10 percent of all euro zone government bonds, a window of opportunity may open up.

“Effectively, this is a large gift from the Greeks to the parts of the euro zone that face debt crises. By conducting its debt exchange in the way it did, Greece has in effect resurrected the plausibility of purely voluntary debt-reduction operations in Europe.”

Even the 10-year debt of fellow bailout recipient Ireland, which many investors reckon has the underlying economic capacity to go back to the markets next year, is still trading at less than 90 cents in the euro and many doubt its imminent market return.

“We expect that Ireland will need a second financing package beyond 2013,” economists at Citi said on Monday. What’s more, if Europe’s new fiscal pact is rejected by voters in a planned referendum there in the coming months, Ireland would lose access to the financial backstop of the European Stability Mechanism and likely unnerve many investors.

Yet voluntary debt swaps with some debt relief stemming from more modest haircuts than Greece may well be the best way to ensure these two countries avoid outright default and return to private financing in a reasonable amount of time.

And if such exchanges were wholly voluntary, it would also mean credit default swap insurance would not pay out. One danger is that the prospect of countries opting for such a swap may scare creditors in larger countries like Italy and Spain where currently no bond haircut is expected by the market, thanks in large part to the ECB’s liquidity injections.

And the upshot for many economists is that there will be a longer-term price to pay for governments for tinkering with the rules of the game, as many investors view it, via the likes of retroactive bond legislation and obfuscation of CDS markets.

“Investors will expect a premium for bearing this regulatory risk,” Morgan Stanley’s Manoj Pradhan told clients in a note, adding that only central bank liquidity floods were now obscuring the resultant higher financing costs and there would be a dangerous blurring of lines between macro and market risks.

That’s the answer? To protect monetarily non-sovereign nations, screw the private sector — the bond holders. And this convoluted, byzantine Whac-a-mole is less chaotic for the euro nations, their people and their lenders than adopting federalism or becoming Monetarily Sovereign?

Translation for all of the above: “Lenders: If you voluntarily accept a screwing now, we promise not to screw you as much next time. Otherwise, we’ll screw you worse now and even worse yet, later. What’s your voluntary choice?”

Unless the euro nations find solutions #1 or #2 (above), you can be sure that 10, 20, 50 years from now, these nations will have continued with their borrow/default/austerity convulsions. Of course, I’m dreaming when I say, “10, 20, 50 years.” There is no possibility the EU will continue to exist with its current rules. The people will wise up and revolt.

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

Here’s what Mitt said:

By increasing our annual naval shipbuilding rate from nine to 15, I intend to restore our position so that our Navy is an unchallengeable power on the high seas.

Restore our position? When did we lose it?

Just as Reagan sought to defend the United States from Soviet weapons with his Strategic Defense Initiative, I will press forward with ballistic missile defense systems to ensure that Iranian and North Korean missiles cannot threaten us or our allies.

Star wars, again? Remind me, how did it work out for Reagan?

As for Iran in particular, I will take every measure necessary to check the evil regime of the ayatollahs. Until Iran ceases its nuclear-bomb program, I will press for ever-tightening sanctions, acting with other countries if we can but alone if we must.

Tighter sanctions? Isn’t that what President Obama is doing? Aren’t those what you’ve been criticizing? And specifically what sanctions are not already being applied? And if the U.S. acts alone, what prevents Russia, China et al, from giving Iran all the aid it needs?

But at least our 6 extra ships will defeat the Iranian navy.

I will speak out on behalf of the cause of democracy in Iran and support Iranian dissidents who are fighting for their freedom.

Speak out on the cause of democracy? Please don’t scare those mullahs. And specifically, how will you support Iranian dissidents?

I will make clear that America’s commitment to Israel’s security and survival is absolute. I will demonstrate our commitment to the world by making Jerusalem the destination of my first foreign trip.

Well that surely will make the Palestinians give up their demands and Hamas undoubtedly will stop firing rockets into Israel. How come nobody thought of that, before?

Most important, I will buttress my diplomacy with a military option that will persuade the ayatollahs to abandon their nuclear ambitions. Only when they understand that at the end of that road lies not nuclear weapons but ruin will there be a real chance for a peaceful resolution.

You’re going to start a war with Iran? Sure, why not? The wars in Iraq, Pakistan and Afghanistan turned out so well. Vietnam, too. When you send Americans overseas to die, will you lead the charge?

My plan includes restoring the regular presence of aircraft carrier groups in the Eastern Mediterranean and the Persian Gulf region simultaneously. It also includes increasing military assistance to Israel and improved coordination with all of our allies in the area.

“Increasing” “Improving.” This is a plan?

We can’t afford to wait much longer, and we certainly can’t afford to wait through four more years of an Obama administration. By then it will be far too late. If the Iranians are permitted to get the bomb, the consequences will be as uncontrollable as they are horrendous. My foreign policy plan to avert this catastrophe is plain: Either the ayatollahs will get the message, or they will learn some very painful lessons about the meaning of American resolve.

Bush used the same scare tactics to get us into Iraq. Let’s get real. Whether Iran has one nuclear bomb or fifty, it never will use them. The mullahs like to send kids on suicide missions, but they themselves don’t want to die.

A nuclear reprisal would obliterate Iran. The Supreme Leader knows this. North Korea is crazier than Iran, and they won’t use nukes either. So before you and the other brave, tough patriots start sending our children to be maimed and killed, try to use what little common sense the “religious” right has left.

Way, way back, when I was young, we used to call big mouths, “coat holders.” They were the guys who would say, “Let’s you and him fight, and I’ll hold your coats.”

Calm down, Mitt. Is winning the Presidency so important it’s worth killing for?

Here’s one for you, killer. You earned it:

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 IMF proclaims on its web site: “The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

For an organization with the word “monetary” in its title, it knows nothing about Monetary Sovereignty, and for that reason, it has accomplished none of what it claims. It lends money to troubled debtors (thereby increasing their debt). At the same time, scolds debtors to reduce their debt (i.e. to reduce their money supply), as a way to grow their economies. It’s beyond ignorance. It’s a big reason the world is so screwed up.

They are the classic leech doctors, who bleed patients to cure anemia. Here’s what they say.

FINANCE & DEVELOPMENT, September 2011, Vol. 48, No. 3
By Jiri Jonas and Cemile Sancak

PUBLIC debt has grown rapidly in many advanced economies as a result of the recent severe global downturn. Now those countries will have to undertake unprecedented expenditure and tax (that is, fiscal) adjustments to ensure debt sustainability.

Note to IMF: Monetarily Sovereign nations are different from monetarily non-sovereign nations. The former do not pay debts with tax money. The later do. In a Monetarily Sovereign nation, a government surplus is a private sector deficit.

Earlier attempts at fiscal adjustment provide important lessons to guide policymakers in this effort. We look at efforts undertaken more than a decade ago in Canada and the United States that provide lessons for today’s issues.

Both nations faced growing fiscal deficits and public debt in the 1980s, and the initial attempts to correct them proved insufficient. As deficits and debt mounted in the first half of the 1990s, both countries introduced adjustment plans to restore debt sustainability.

Think about what “debt sustainability” means. Does it mean Canada and the U.S. will not be able to pay their bills? That never has happened, so clearly the debts have been “sustainable.” But IMF never says what “debt sustainability” means. It’s just one of those magic phrases, having no substance, while sounding prudent and knowledgeable.

In Canada . . . the ultimate goal was a balanced budget.

Balanced budget = no money supply growth. Why would any country want to end the growth of its money supply, especially with a growing population (fewer dollars per person), inflation (making each dollar worth less) and the needs of a growing economy?

Here is how Gross Domestic Product is calculated:

Federal Spending
+ Private Investment
+ Private Consumption
+ Net exports
GDP

Three of the four factors comprising GDP require an increased money supply. But IMF wants to cut the money supply. So from where with growth come?

Both countries perceived growing public debt as a threat to economic prosperity, though for somewhat different reasons. The Canadian government stressed the negative implications of high interest payments on growth . . .

Logically, this makes no sense, as increased federal interest payments are identical with every other economic stimulus the government uses. They add dollars to the economy. The U.S. experience is that, contrary to popular wisdom, higher interest rates are, in fact, stimulative.

. . . the importance of intergenerational equity (that future citizens should not pay the bills of living citizens) . . .

In Monetarily Sovereign nations, like Canada and the U.S., taxes do not pay for federal spending. If taxes fell to $0 or rose to $100 trillion, neither event would affect by even $1, the government’s ability to spend. There is no relationship between federal taxes and federal spending.

. . . and the need to maintain the ability to spend on valued public programs such as health care and old age security, without jeopardizing long-run fiscal stability.

Another phrase I love: “fiscal stability.” What is ‘stable” about reduced fedefral spending or increased federal taxes? No on knows, least of which the IMF.

A Monetarily Sovereign government pays bills by instructing creditors’ banks to mark up the creditors’ checking accounts. These instructions are not constrained by, or related to, tax collections.

The U.S. government emphasized the adverse effect of high interest rates on private investment and, through that channel, on economic growth.

History shows no such adverse effects.

In both countries, deficit reduction turned out to be greater than expected. In the United States, the actual deficit was close to zero in 1997, and the budget balance moved to a surplus that exceeded 2 percent of GDP by 2000.

Which led to the recession of 2001. No surprise, though. Every depression in U.S. history has been preceded by a series of surpluses, and nearly all recessions have been preceded by a series of reduced deficit growth.

In Canada, the overall balance moved to surplus during 1997–98.

Which led to the Canadian recession of 1999. After that, Canada’s oil exports rose dramatically, replacing the dollars lost to government surpluses. A government surplus is a private sector deficit.

CIA World Factbook

The U.S. fiscal position deteriorated and the deficit exceeded 3 percent of GDP by 2003.

The years 2002-2007 saw solid GDP growth in the U.S. For the IMF, a successful position is low, or no, money growth, regardless of economic growth — or lack thereof.

In contrast, Canada’s overall balance remained in surplus until the global financial crisis in 2008, and Canada’s net debt-to-GDP ratio is now the lowest among the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States).

They lump monetarily non-sovereign nations, which do have debt sustainability problems, with Monetarily Sovereign nations, that can service any size debt.

In hindsight, it is clear that the fiscal improvement experienced by the United States in the late 1990s and early 2000s had a less solid foundation, because it was in part driven by temporary factors related to the stock market boom and realized capital gains, as well as by strong economic activity boosted by rapid credit expansion.

And what supported the stock market boom, realized capital gains and rapid credit expansion? The increased money supply. The IMF confuses effect with cause.

In the early 2000s, policymakers debated over what to do with fiscal surpluses. . .

A Monetarily Sovereign government doesn’t do anything “with” surpluses. Unlike you, me, the states, counties and cities, and the euro nations, the U.S. does not save dollars. Why should it? I creates dollars, ad hoc, by paying bills.

Readers of this blog have seen how I have, at various times, awarded dunce cap symbols, clown symbols and traitor symbols to deserving “experts.”. As I am sovereign in these symbols, I maintain no supply. I award them ad hoc. That is how our federal government operates with its sovereign currency.

The IMF simply cannot comprehend Monetary Sovereignty vs. monetary non-sovereignty. If they were doctors, they would prescribe vasectomies for women, and tubal ligation for men.

The main lesson is that fiscal adjustment based on structural reforms is more likely to be sustainable compared with improvements based on temporary factors. Given the size of fiscal imbalances and future fiscal pressures related to population aging, many advanced economies will have to maintain fiscal discipline for several years, if not decades.

Thereby assuring ever deeper and longer recessions and depressions. For the IMF “doctors,” the measure of success is not the patient’s economic health, but rather how much medicine the patient takes.

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