–Will the “Super Committee” actually consider what deficit reduction will do to unemployment?

A most remarkable, though belated, awakening may be under way. Read about the letter from several Senators to the deficit reduction super-committee. The letter urged the Co-Chairs of the Joint Select Committee on Deficit Reduction to take steps to ensure that Congress and the public get an independent estimate of their proposal’s impact on jobs – and do no harm to employment in America.

In part, the letter said,

We must do more to focus our national agenda on job creation and restoring our middle class. With that goal in mind, we ask you to take steps to ensure that your deliberations about deficit reduction do not worsen, and hopefully improve the jobs picture.

The letter specifically asks the Select Committee to adopt two principles:

That the proposals be analyzed by CBO for impact on employment; and
That the overall package not result in any net decrease in employment.

The letter is remarkable, not only for it’s recognition of economic reality, but for its bow to political reality. The economic reality is it is 100% impossible to stimulate employment while reducing the federal government’s money creation (aka deficit spending). The political reality is the voting public cares more about jobs than deficits.

The letter also is remarkable for the low bar it sets. It doesn’t ask this committee of luminaries to do anything positive; just don’t do anything negative. This is the measure of success. It’s like saying to the doctor, “Your goal is not to cure the patient; just don’t kill him.”

It will be interesting to see the independent estimates of the Committee’s proposals. It also will be interesting to see how the Tea/Republicans bob and weave to show that somehow, by a miracle of fudged mathematics, reducing the money supply will increase employment. I have a feeling we soon will see a spate of double-talk and fake data analysis beyond anything even this moribund Congress has produced.

Contrast the above message with the “don’t play small ball” message delivered by “60 leading economists, budget experts, former Treasury secretaries and former law makers. They essentially told the Committee not to consider what will happen to the economy, the poor, the sick, the unemployed, those losing their homes, the elderly and the children, but rather to focus on cutting federal deficits.

I’ll continue to keep you informed about the request to consider the effect of deficit cuts on unemployment. Meanwhile, keep a sharp ear for chest-thumping, flag-waving gobbledegook from the debt-hawks, as they realize how untenable their position has become.

By the way, here is another reminder about what happens when deficit growth declines: Recessions. (And recessions are cured with increased deficit growth.)

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

–Here comes the International Monetary Fund, the world’s economic bull in a china shop.

If one could point to any organization more economically ignorant that the U.S. Congress, you would have to decide between the European Union and the International Monetary Fund. Focus for now on the IMF, which has been damaging the world’s economies for many years. Here are excerpts from a 9/21/11 article written by Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department:

The fiscal outlook in most countries is stronger than we expected two years ago. Let’s take the five largest European countries. The chart below shows, in gray, the increase in the public debt to GDP ratio that we were projecting two years ago for the period 2012 through 2014.

It also shows in blue the increase in debt over that same period that we are projecting today. As you can see, debt ratios are now projected to go up by less than we previously expected. In some cases, they are even expected to fall. This reflects the commitment that these countries have made to reduce their deficits over an extended period.

Look closely at the IMF graph. It shows five countries, four of which are monetarily non-sovereign, and one of which, the U.K., is Monetarily Sovereign. As readers of this blog know:

Debt/GDP is meaningless for a Monetarily Sovereign nation, and a Monetarily Sovereign nation is not comparable with a monetary non-sovereign nation. While deficit reduction may be necessary for monetarily non-sovereign nations, it not advisable for Monetarily Sovereign nations, except in the rare case of otherwise uncontrollable inflation.

Debt/deficit reduction removes money from an economy, which always leads to recessions and depressions. Mr. Cottarelli does not recognize this fact, because he works for the IMF, which invariably spreads its austerity nonsense, and as a result, never helps any nation recover from any economic problem. They are the classic “apply-leeches-to-cure-anemia” organization, damaging everything they touch and never learning from history.

For the United States, for example, commitment to a credible program to reduce debt and deficits over the medium term could free up space for a short-term stance that is more attuned to the economic cycle. From this perspective, the American Jobs Act proposed by President Obama can play an important role in supporting growth and employment, if it is embedded in an appropriate medium-term framework to bring down the public debt.

Given the size of the adjustment needed in the United States, this framework will need to involve an increase in tax revenues, and it will be important to ensure that the burden of this is distributed equitably across society. Reform of entitlements—both health care and social security—to contain the growth of spending on these items is also needed.

Could more ignorance be displayed in just two paragraphs? Reducing federal debt and deficits does not “free up” anything. Federal spending is not limited by debt or deficits. Deficit reduction is an economic disaster, as Americans are doomed to discover within the next few months.

Increasing tax revenues always hurts an economy. And “reform of entitlements,” the upper-class euphemism for “cutting income for middle- and lower-class who need it most” also always hurts an economy.

Because he does not know which nations are Monetarily Sovereign and which are not, nor does he even understand what Monetary Sovereignty is, and because he is in a position whereby he should know better, I award Mr. Cottarelli and the entire IMF, the maximum of five dunce caps.

(Note to IMF: Despite running a large deficit in dunce caps, I never will run short — just as the U.S. government never will run short of dollars)

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

MONETARY SOVEREIGNTY

–A solution for our economy: Flood all Tea Party homes

Every day in every way, the Tea Party and its followers destroy America:

Washington Post, 9/22/11
House approves spending measure opposed by Senate; shutdown possible
By Rosalind S. Helderman and Paul Kane

Washington lurched toward another potential government shutdown crisis Friday, as the House approved a Republican-authored short-term funding measure designed to keep government running through Nov. 18 that Democrats in the Senate immediately vowed to reject.

While the disaster victims and their children wait beside their ruined homes, praying for help, Congress struggles keep the government running one more month. One more month. Perhaps these impoverished Americans should write to the Tea Party Patriots for help.

Senate Democrats are urging the House to pass a stand alone disaster relief measure. The GOP-controlled House on Wednesday rejected $3.7 billion in disaster relief as part of a bill to avert a government shutdown.

$3.7 billion. This year, the federal government will spend about $4 trillion, but Congress can’t even agree on $3.7 billion – less than one thousandth of the budget.

Speaker John Boehner (R-Ohio) said on Thursday there is no threat of a government shutdown despite Congress’ failure on Wednesday to approve a temporary budget extension that would have allowed the government to operate through mid-November.

The bill, which will keep federal agencies funded through Nov, 18, passed over staunch objections from Democrats, who opposed a provision that would pair increased funding for disaster relief with a spending cut to a program that makes loans to car companies to encourage the production of energy-efficient cars.

In Tea Party logic, you take your choice: Help the victims of natural disasters or save energy. Not both. Stupid? Of course. But we are talking about the Tea Party, a group that thinks reduced money growth will cause economic recovery.

So my suggestion is: Flood all houses inhabited by Tea Party members, then ask them whether they want help from the government.

I award the Tea/Republicans two dunces for ignorance and two traitors for cruel heartlessness toward suffering Americans:

(Note to Tea/Republicans: Despite running a large deficit in dunces and traitors, I never will run short — just as the federal government never can run short of dollars)

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

MONETARY SOVEREIGNTY

–Letter to Tony Hunter, president, publisher and CEO of Chicago Tribune Company. Probably fruitless.

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. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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I had a very brief correspondence with Tony Hunter, president, publisher and CEO of Chicago Tribune Company, which culminated in my sending him the following note. I do not expect him to answer. The editors of the Tribune often write about economics, but have shown no inclination to understand economics.

So, why did I write? Just tapping on the sleeper’s shoulder. Who knows which tap will awaken someone there. I hope you will continue contacting your politicians and media. You may be the one to end the nightmare.

Tony,

Would you be willing to publish a short (condensed to less than 1,000 words) OpEd article telling the other side of the deficit story? Here’s a sample:

The Myth of Federal Deficits

The federal deficit discussion is based on the false belief that federal finances resemble our personal finances. The federal government is not like us. You and I, Chicago, Cook County, Illinois and every business are “monetarily non-sovereign.” To pay bills, we need income coming from an outside source – a salary, a loan or, in the case of state and local governments, taxes.

Uniquely, the federal government does not need income to pay its bills; it merely sends instructions to banks to mark up creditors’ accounts. A check from the federal government is not money. It is a set of instructions to your bank to mark up the numbers in your checking account. Because the federal government is “Monetarily Sovereign,” it has the unlimited ability to send these instructions, endlessly.

Unlike state and local governments, the federal government does not rely on taxes. Whether federal taxes fall to $0 or rise to $100 trillion, neither event would affect the federal government’s ability to pay bills, that is, to send instructions to banks. The federal government is the only entity in America that has this ability, though certain other foreign governments have it in their own nations: Canada, Australia, China, etc.

What about inflation?

The only limit to federal spending is not taxes, or debt or deficits or debt/GDP or any other popular measure. The limit to federal spending is inflation. We have had inflation over time because the Federal Reserve believes some inflation is beneficial, so it establishes a target rate at about 3%. The Fed has the power to cause 0% inflation, or even deflation. Historically, U.S. inflations have not corresponded with federal deficits but rather with oil prices.

So, why do we pay taxes at all?

Prior to 1971, the U.S. was on a gold standard. Its ability to pay bills was limited by its gold supply. When gold was in short supply, the U.S. borrowed, which meant federal debt or taxes were needed to reduce the debt. On August 15, 1971, President Nixon ended the gold standard. Today, even were there not one ounce of gold in Fort Knox, the federal government retains the unlimited ability to pay its bills.

Though the world of economics changed on that August day, politicians, the media and even old-line economists never changed their theories. They continued to believe federal borrowing and taxing were necessary. When underlying facts change, but beliefs don’t change, the beliefs are wrong.

How will we ever pay off our debt?

The federal deficit is the difference between taxes collected and federal spending. Federal debt is the total of outstanding Treasury Securities (T-bills, notes and bonds). A law, created many years ago, during the gold standard, requires the Treasury to sell T-securities in the same amount as the federal deficit. Were it not for this obsolete law, there would be no T-securities and thus no federal debt.

To purchase a T-bill, you instruct the federal government to reduce the balance in your checking account and to increase the balance in your T-bill account. The government “pays off” by increasing the balance in your checking account and reducing the balance in your T-bill account. Except for interest, this process does not add money to the economy, so has virtually no inflation implications.

The federal government could eliminate all federal debt, tomorrow, merely by instructing banks to credit the accounts of T-security holders, while debiting their T-security accounts – a simple act of accounting. Because the relationship between federal deficits and federal debts is only a legal one, there could be deficits without debt, and debt without deficits. The two are not functionally related.

Why not reduce the deficit?

By definition, a small economy has less money than does a large economy. So for an economy to grow, its money supply must grow. When the federal government deficit spends, money enters the economy via credits to checking accounts. Deficit spending increases the money supply, while federal surpluses decrease the money supply. That is why every depression in U.S. history, and the vast majority of recessions, have resulted from decreases if federal deficit growth, and all recoveries have corresponded with increases in deficit growth.

Today, we try to recover from the most serious recession since the Great Depression. We were saved from another depression by federal deficit spending that began to grow dramatically in 2008. Unfortunately, federal deficit growth began to decline at the end of the recession and has been in decline for what soon will be three years. This, together with the ongoing Congressional demand for reduced deficits, signals the probable return of recession in 2012.

What should be done?

Ending a recession and returning to prosperity requires adding money to the economy. There is no other solution. I suggest the following three steps:

1. End FICA: This regressive tax takes money from salaried workers and from business. Social Security and Medicare should be financed the same way all of the other 1,000 federal agencies are financed: By direct federal support.

2. Reduce income taxes gradually. Increasing the standard deduction by $10,000 each year.

3. Increase federal support for the states (which are monetarily non-sovereign) on a per-capita basis. The states then could support their counties and cities, while reducing local taxes. Each $1,000 of per capita support would add about $300 billion to the federal deficit.

In Summary

The federal government is unique. The rules that apply to you and me, do not apply to the federal government. It cannot run short of money. It cannot go “broke” as Rep. Boehner claimed. It can pay any debt. Our economic growth requires ongoing increases in the money supply, that is, increases in federal deficit spending. The only limit to federal spending is inflation, which not only is nowhere near, but can be controlled by the Fed.

Reducing the deficit will cause recessions, depressions and a decrease in quality of life for us, our children and our grandchildren.

Rodger Malcolm Mitchell

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

MONETARY SOVEREIGNTY

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