–French lobster leaders debate best way to pull their economy down

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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The following WSJ article brings to mind the old saw about why lobsters never can get out of a pail. As soon as one starts to climb up, the others pull it down.

Wall Street Journal, February 29, 2012
French Front-Runner Pledges 75% Tax Bracket
By Gabrielle Parussini

PARIS—French presidential front-runner François Hollande said taxpayers earning over €1 million ($1.35 million) a year would be subjected to a special 75% tax bracket should he be elected, underscoring heightened interest across Europe in raising taxes on the wealthiest individuals.

“It’s a message of social cohesion….It’s a matter of patriotism,” he told journalists on his way in to Paris’s annual agriculture fair.”

Across Europe, the idea of raising taxes on high-income earners began to burgeon three years ago, when the Continent started to descend into recession. In 2009, the U.K. government increased its top marginal income-tax rate to 50% from 40%. In the U.S., the top 1% of earners have been the target of widespread protests under the umbrella of the Occupy Wall Street movement.

Mr. Sarkozy’s government has already slapped a 3% temporary levy on high revenue to be applied to those with a taxable income exceeding €500,000 a year.

Revenue disparity, which has been on the rise in most industrialized economies since the 1980s, has remained relatively contained in France, according to an Organization for Economic Cooperation and Development study published in December. The top 1% taxpayers in France earn less than half the average earned by the top 1% in the U.S.

The Monetarily Sovereign U.S. destroys tax money upon receipt. The monetarily non-sovereign France spends tax money. French tax money flows through the government’s hands, back out into the economy.

While the U.S. government is a creator and destroyer of its sovereign currency, the dollar, the French government is only a conduit for its non-sovereign currency, the euro. Few people, including most economists, politicians and media writers understand this difference.

Hypothetically, raising the tax rate on the rich could be an effective way for a monetarily non-sovereign government to close the gap between the 1% and the 99%. (A Monetarily Sovereign goverenment could do it simply by giving money to the 99%.)

However, to the degree French debt is owned by outsiders, debt service reduces the nation’s total money supply, negatively affecting GDP growth. France cannot overcome this the way the U.S. does – by creating money ad hoc as it pays its bills.

When any government takes from its citizens to pay foreign debt, those taxes temporarily mask a serious problem: Domestic money loss. The government can appear to be prudent, while its economy suffers austerity.

Seemingly, this is what the EU leaders want: Support the public sector at the expense of the private sector. That is why they urge the PIIGS to reduce government debt by increasing private debt (i.e. raising taxes), while offering to lend more euros to the “offending” nations.

The combination of more taxes and more outside borrowing, leads to recessions, while giving the false appearance of a government being financially wise. Whether the euro nations’ leaders want this consciously – these leaders are, after all, creatures of the public sector – or do it out of ignorance, the effect is the same: Deeper and deeper recession, with the reason hidden, thus preventing positive efforts to cure the recession (“We already are doing everything we can.”)

If France is to remain monetarily non-sovereign (a terrible, but likely, path), it never should borrow from outsiders. If 100% of France’s debt were domestic, all tax increases to support debt service, merely would recirculate euros within France, thus delaying the inevitable bankruptcy all monetarly non-sovereign governments face, if their balance of payments is negative.

Of course, the above begs the question: Is it economically wise or morally fair to take away 75% of anyone’s marginal income? The rich are not stupid, you know.

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

–The religious right loves Rush Limbaugh

Need I say more?

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

#MONETARY SOVEREIGNTY

–European Union keeps applying leeches to cure anemia. If Ireland refuses to starve, withhold food.

The EU continues to demonstrate cluelessness about the differences between Monetarily Sovereign nations and monetarily non-sovereign nations. All the more remarkable: This ignorance is shared by most of the greatest economics minds in the world.

Yahoo Finance
European states sign new fiscal treaty, kicking off potentially difficult ratification process
By Gabriele Steinhauser, AP Business Writer

BRUSSELS (AP) — The leaders of 25 European countries on Friday signed a new treaty designed to prevent the 17 members of the eurozone from living beyond their means and avoid a repeat of the region’s crippling debt crisis.

Translation: Because austerity has accomplished nothing good, and has created poverty, misery and pain wherever it has been administered, the 17 euro nations, all monetarily non-sovereign, have agreed to force themselves into more severe austerity.

The leaders hope the rules for budget discipline set out in the accord, known as the fiscal compact, will also lead to closer political and economic integration in the eurozone.

Translation: The ship is sinking, so let’s all drown, together.

Only Britain and the Czech Republic decided not to sign the agreement, a move that triggered concern over a rift in the 27-country European Union.

Translation: Britain and the Czech Republic are Monetarily Sovereign. They use their own currency, so have no need for austerity. Yet, they are the only ones that can see the idiocy of the EU plan. Remarkable.

Many Europeans have grown weary of the EU and the euro. Two years of painful austerity in the poorer countries have taken their economic toll, while many in the richer countries are getting frustrated over funding the expensive bailouts for Greece, Ireland and Portugal.

Others fear that the tighter spending rules will limit governments’ room to maneuver in tough economic times and force German-style fiscal discipline on countries with vastly different economies and cultures. However, the new deficit limits make some exceptions, such as for severe recessions and other unexpected economic circumstances.

Translation: Austerity causes poverty, misery and pain. The people understand that; their leaders don’t. The recession we have is not “severe” enough and anyway, we “expected” all these horrifying economic circumstances. (Well, we really didn’t, because we don’t understand Monetary Sovereignty. But don’t tell anyone. We don’t want to look stupid.)

The economic outlook is darkening. Unemployment is at a record high and several countries are forecast to fall back into recession this year, yet the EU leaders were hesitant to back off the austerity policies that have dominated their response to the debt crisis and are now being blamed for the economic downturn.

Translation: You mean austerity doesn’t work, cannot work and never will work? O.K., let’s do more of it.

“We remain in a fragile situation,” German Chancellor Angela Merkel warned. “The crisis is far from over.”

Translation: We’re swimming in the middle of the ocean, without life jackets. The EU is pouring water on our heads, and sharks are circling. Yep, this crisis is far from over.

The biggest challenge may lie in Ireland . . . This time, EU leaders have ensured that Irish voters cannot block the fiscal pact. Unlike earlier treaties, this one does not require unanimous support to become law. It will come into force once 12 of the eurozone’s 17 members ratify it.

An Irish rejection would chiefly undermine Ireland’s own ability to keep paying its bills. The fiscal treaty proposes to prevent any abstaining eurozone countries from receiving loans from the eurozone’s future financial backstop, the European Stability Mechanism.

Translation: The nerve of those Irish, rejecting the poverty, misery and pain that our “solutions” always cause. We’ll show them. We’ll add to their poverty, misery and pain.

Economists believe Ireland may require a new round of loan aid in 2013 once its current flow of EU-International Monetary Fund bailout funds runs out.

Ireland in November 2010 negotiated a euro67.5 billion ($89.5 billion) EU-IMF credit line and has received euro48 billion ($63.5 billion) so far at an average interest rate of 3.3 percent. The current depressed value of Irish government bonds suggests that, were Ireland to return to normal long-term borrowing today, it would have to pay investors at least double that rate.

Translation: Ireland is starved for money. Being monetarily non-sovereign, plus having a negative balance of payments, they have no way to generate the money to save their economic lives. So let’s withhold money, then blame them for lack of fiscal prudence. So far, the world has been stupid enough to buy that idea.

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Wait a minute. Before you smirk, that is exactly the idea our “balance-the-budget, cut-the-deficit” politicians and media have been foisting on the American public. They want us to function as though we were monetarily non-sovereign, institute austerity, and become Ireland.

Ah, faith and begorrah.

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

#MONETARY SOVEREIGNTY

–A think piece: The science of economics and our survival.

Prelude: What makes us human is our insatiable desire for answers. We biologically are attracted to puzzles. We need to see the future, for seeing the future has allowed us to prepare for the future, which has been a key to our survival.

Because the universe is complex beyond human comprehension, we created science and religion, the purposes of which are to find simple rules that will divide the complexity into manageable bits we can understand. If humans were smarter – much, much, much smarter – we wouldn’t need science or religion to help us know the answers.

What is the answer to, “Where did the universe come from?” Simple. God created it. Or the big bang created it.

How did we become what we are? Simple. God created us in his image. Or evolution did it. We can visualize those answers.

While many sciences are ruled by experimentation, economics is ruled by history. If in the past, events “1” and “2” often have occurred sequentially, the next time event “1” happens, economists look for event “2” to follow.

The problem economists encounter is the massive complexity of the world’s economies. Event “1” does not occur in a vacuum. Myriad other events occur simultaneously, and any of them, or some unknown combination of them, could affect event “2.”

Economics is like meteorology, where for instance, tornado predictions, even a mere hour in advance, are suspect. Can one person’s sneeze affect the timing and location of next month’s rainstorm? Such is complexity.

Economists, being human, need answers. So, they look for repetitions of the “1,” “2” sequence as evidence of cause/effect, with the belief that the more repetitions, the more likely is the relationship. But, event “1″ never repeats exactly. No two wars, no two recessions, no two oil price increases, no two federal actions are exactly the same. Economists try to cut through complexity with the phrase, “All other things being equal,” knowing that all other things never are equal.

(Example: Some stock traders – “chartists” – belief prices follow predictable patterns, virtually ignoring all other effects. I suspect chartists see religious icons in wall stains and potato chip shapes.)

If the “A,” “B” sequence does occur repeatedly, the effect can be one of the three “C’s”: Coincidence, Correlation or Causation. Coincidence is an accidental relationship. It does not lend itself to prediction.

Correlation is a statistical description of the relationship between “1″ and “2,” which may or may not imply cause/effect, and it may or may not lead to prediction.

Causation tells us that “1″ actually causes “2,” though even it may not lead to prediction, if other factors are overriding.

In the post titled, “To understand economics you must understand Monetary Sovereignty” I list all 6 depressions in U.S. history, every one of which began with years of federal surpluses. The implication is that federal surpluses cause depressions.

But there are caveats. “Depression” is a man-made definition. Use a different definition and there may have been more than 6 depressions, and some of them may not have followed federal surpluses. Further, some surpluses lasted many years before the depression arrived, while others lasted only a few years. Why?

In the same post, I present a graph showing recessions follow declines in federal deficit growth, while recessions end following increases in deficit growth. But we encounter the same caveats as above.

So is the surplus/depression relationship a coincidence, a correlation or cause/effect? Is the reduced deficit growth/recession relationship a coincidence, a correlation or cause/effect? Will today’s reduced deficit growth lead to another recession? Will federal surpluses lead to a depression?

President Clinton gave us a short series of surpluses, which were not followed by a depression, though they were followed by a recession. But, had the surpluses lasted longer, would we indeed have had the depression – depending on the definition of depression?

And all of this ignores the biggest economic change of all: On August 15, 1971, the U.S. and much of the world became Monetarily Sovereign. It was as though scientists had debated about the best historical sailing tactic to avoid falling off the edge of the earth, only to discover the earth had no edge. That realization changed sailing tactics.

Science is ruled by mathematics, which seem so precise, so indisputable. But, there are no ultimate truths. René Descartes searched for one, with his “I think, therefore I am.” He could not go beyond that. Kurt Godel showed that no mathematical system could demonstrate its own consistency, meaning something always had to be assumed and could not be proved.

Conclusion: All of science, all of what we know, is composed of best estimates. Ultimately, all science is subjective. Nothing is certain. Scientists continually weigh one conclusion against another, then lean toward the one they feel is supported by the best, most reliable, most valid evidence.

Yet, all “best estimates” are not equal. Those who say the federal deficit and debt are too large, unsustainable, cause inflation and must be paid for by our children provide no evidence whatsoever. Never have I seen a graph supporting the “best estimate” that federal deficits cause recessions or inflation, despite the near universality of these beliefs.

Never have I seen facts to support the “best estimate” that our children will pay for Social Security, or that Medicare is unsustainable. The media, politicians and old-line economists offer plenty of data. They can tell you the total U.S. debt, the debt/GDP, total U.S. interest, debt per family, etc., etc. But they don’t provide data to indicate relationships. They merely make intuitive declarations, which are repeated by the public as fact.

What data says federal debt is too high? Or that debt/GDP should be reduced to some ratio? Or that families owe the federal debt? Go to US Debt Clock.org and you’ll see the data most often referenced. But you will not see the connectors between these data and economic results.

Ask your neighbor whether federal money printing causes inflation, and his answer will be an unhesitating, “Yes.” Never mind that the federal government does not print money. Never mind that since we became Monetarily Sovereign there has been no relationship between federal deficits and inflation. Never mind that every inflation for the past 40 years, has been associated with oil prices.

Your neighbor will say, “What about Weimar and what about Zimbabwe?” Never mind that neither even remotely resembles the U.S. situation. Your neighbor knows what he knows, and what he knows is what he has been told by the experts.

The fundamental difference between science and religion is this: While science attempts to find information, and to use that information to find correlations, and to use those correlations to find cause/effect, religion does not. For religion, all information, all correlations and all cause/effect are known and supported by faith.

In religion, there is no need to search for new answers. Those who do are scorned and mocked as infidels. We elect presidents based on their faith, not on their search for knowledge.

The debt-hawks, the media writers, the old-line economists too, have neither need nor desire to search for answers. For them, economics is a religion. Their answers do not, and will not, change, even despite the massive changes of Monetary Sovereignty.

These experts will continue to tell you the best sailing tactic is to keep near shore so to avoid falling off the edge of the world. All of this would be humorous if it weren’t so harmful. For by sailing close to shore, we make it more likely we will crash upon reefs and rocks – and be less able to find new worlds.

Religiously restricting federal deficits makes it more likely we will crash upon the reefs and rocks of recession, depression, sickness, poverty and ignorance, and we’ll be less able to improve our lives.

Sadly, thanks to our leaders, we remain in the Dark Ages of economic understanding. The search for answers has come to the edge of the world, and until someone has the courage to sail beyond, we never will be able to see the future.

And that blindness threatens our survival.

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

#MONETARY SOVEREIGNTY

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