–The most hilarious concept in economics — or the most frightening

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

After I wrote the post about “Go Big,” (the Committee for a Responsible Federal Budget’s demand that the deficit be reduced by even more than the deficit reduction “super committee” mandate), I initiated the following correspondence with the CRFB, thinking in advance it would be useless. (But I felt like pecking them a bit).

From RMM: Now that the “fiscal cliff” (a puny $500 billion reduction) has everyone alert to the dangers of deficit reduction, whatever happened to your famous “Go Big” deficit reduction of $4 trillion?

Surprisingly, I received an answer:

Rodger,

Thank you for contacting. CRFB believes, as we write in our paper: Between a Mountain of Debt and a Fiscal Cliff, “At the end of 2012 and the beginning of 2013, many major fiscal events are set to occur all at once. They include the expiration of the 2001/03/10 tax cuts, the winding down of certain jobs provisions, the activation of the $1.2 trillion across-the-board “sequester,” an immediate and steep reduction in Medicare physician payments, the end of current Alternative Minimum Tax (AMT) patches, and the need to once again raise the country’s debt ceiling.

At the end of 2012, we face what Federal Reserve Chairman Ben Bernanke calls a “fiscal cliff.” Taken together, these policies would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections – enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner.

Gradually phasing in well thought-out entitlement and tax reforms would be far preferable to large, blunt, and abrupt savings upfront. Policies set to take effect at the end of the year could seriously harm the short-term economy without making the changes necessary to address the drivers of our debt or strengthen the economy over the long-term.”

If you are interested in helping out with our national debt, I encourage you to visit http://www.fixthedebt.org. There you can find information about a new campaign we have launched, the Campaign to Fix the Debt, a bipartisan effort to get a comprehensive debt deal enacted. The campaign has a petition to sign and even volunteer opportunities available.
Regards,
Todd S. Zubatkin
Policy Analyst, Committee for a Responsible Federal Budget New America Foundation
1899 L Street NW, Suite 400, Washington, DC 20036; Email: zubatkin@crfb.org
http://www.crfb.org

The correspondence continued this way:

RMM: Todd,
Thank you for your note. I’d love to help your efforts to grow the economy and reduce unemployment. An accounting rule is: deficits = credits. So when the federal government runs deficits, who receives the credits? That is, when the government has an outflow of dollars, who receives the dollars? So far as I can tell, the answer is: The economy receives the dollars.

Similarly, when deficits are reduced, the economy receives fewer dollars. So the question that keeps nagging at me: How does less money going into the economy, help grow the economy and reduce unemployment?

And he answered:

Zubatkin: Please see the following: This Time Is Different: Eight Centuries of Financial Folly, Carmen M. Reinhart & Kenneth S. Rogoff,

The Announcement Effect Club,

Federal Debt and the Risk of a Fiscal Crisis – Congressional Budget Office,

Regards, Todd Zubatkin

Instead of answering a simple question, they typically will tell you to read a book, or multiple books. It’s a form of evasion. But one thing did catch my attention: “The Announcement Effect Club.” It was formed two years ago, but somehow I missed it:

Committee for a Responsible Federal Budget

ANNOUNCING THE “ANNOUNCEMENT EFFECT CLUB” January 14, 2010

Since CRFB called for a Fiscal Recovery Plan in July, a growing number of prominent economists, organizations, and opinion leaders have joined us in suggesting we create a viable fiscal plan now to be implemented as the economy recovers. To this end, we are compiling a handy-dandy list of members of the newly formed “Announcement Effect Club.”

As we explained in July, the U.S. could aid the economic recovery without exacerbating a debt crisis by “continu[ing] with stimulus policies as necessary, but… announc[ing] a plan to reduce the deficit and close the long-term fiscal gap.” The Peterson-Pew Commission of Budget Reform reiterated this point in Red Ink Rising, discussing that “the ‘announcement effect’ of such a commitment, if credible, can have positive economic effects by signaling that the United States is serious about reducing its debt.”

In other words, while aggressive debt reduction in the short term might imperil the fragile recovery, the announcement of future deficit reduction can actually strengthen it.

Got it? The so-called “viable plan” is based on this: While deficit spending is necessary, announcing a plan to reduce the deficit will strengthen the economy. Think about that.

Amazed that any rational human being could believe such nonsense, I wrote back:

RMM: Thanks Todd, So, even though reducing deficits sends fewer dollars into the economy, the psychological effect (“announcement effect”) of reducing deficits will grow the economy?

Zubatkin: Rodger, The Announcement Effect Club’s idea is that there is an economic benefit in announcing a plan to fix our debt. Regards, Todd Zubatkin

Not being able to let go of this hilarious and frightening concept, I wrote back:

RMM: And does that economic benefit of the announcement overcome the actual loss of dollars?

So far, no response. Anyway, I can say nothing to improve upon the entertainment value of an idea that essentially tells you: “Deficits are necessary to grow the economy, but promising to cut deficits will grow the economy.”

Addendum: Here is the shameful list of people whom Zubatkin and the CRFB claim believe this utter rot:

Inductees into the Announcement Effect Club in chronological order. If you have a nominee for the club, let us know:

Members of the Committee for a Responsible Federal Budget* (Time to Develop a Fiscal Recovery Plan 7/9/09)
Ben Bernanke, Chairman, Federal Reserve Board (Congressional Testimony 7/21/09)
Washington Post Editorial Board (Washington Post 8/26/09)
Financial Times Editorial Board (Financial Times 9/28/09)
Marvin Phaup, Director, The Pew Charitable Trust’s Federal Budget Reform Initiative (Albany Times-Union 9/30/09)
Angel Gurria, Secretary-General, Organization for Economic Co-operation and Development (Statement before the International Monetary and Financial Committee 10/4/09)
Donald Marron, former acting CBO director (Blog 10/12/09)
C. Fred Bergsten, Director, Peter G. Peterson Institute for International Economics (Foreign Affairs Nov/Dec 2009)
Peterson-Pew Commission on Budget Reform (Red Ink Rising 12/14/09)
International Monetary Fund (Report 12/16/09)
John Podesta, Center for American Progress (Financial Times 1/4/10)
Michael Ettlinger, Center for American Progress (Financial Times 1/4/10)
Laura Tyson, Haas School of Business at UC Berkeley, former chair of the President’s Council of Economic Advisors (Bloomberg News, 1/8/10)
Bruce Bartlett, former Deputy Assistant Secretary for economic policy, U.S. Dept. of Treasury (Forbes.com 1/8/10)
Diane Lim Rogers, Concord Coalition, former House Budget Committee chief economist (EconomistMom.com 1/10/10)
Leonard Burman, Syracuse University (Paper 1/11/10)
Jeffrey Rohaly, Urban Institute (Paper 1/11/10)
Joseph Rosenberg, Urban Institute (Paper 1/11/10)
Katherine Lim (Paper 1/11/10)
James R. Horney, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
Kathy Ruffing, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
Kris Cox, Center on Budget and Policy Priorities (CBPP Report 1/12/10)
National Research Council and National Academy of Public Administration (Choosing the Nation’s Fiscal Future 1/13/10)
Nick Clegg, Leader, UK Liberal Democrats (Financial Times 1/14/10)
Timothy Geithner, Secretary, Department of the Treasury (Congressional Testimony 2/3/2010)
André Meier, International Monetary Fund (After the Stimulus, the Big Retrenchement 2/5/2010)
Giancarlo Corsetti, European University Institute (After the Stimulus, the Big Retrenchement 2/5/2010)
Gernot Müller, University of Bonn (After the Stimulus, the Big Retrenchement 2/5/2010)
Carmen Reinhart, University of Maryland (Senate Budget Committee testimony 2/9/10)
Thomas Hoenig, President, Federal Reserve Bank of Kansas City (Knocking on the Central Bank’s Door 2/16/2010)
Richard Berner, Co-Head of Global Economics and Chief U.S. Economist, Morgan Stanley (Peterson-Pew Event 2/16/2010)
Clive Crook, Senior Editor, The Atlantic Monthly (Peterson-Pew Event 2/16/2010)
Tim Besley, Professor of Economics and Political Science, London School of Economics (Blog 2/25/2010)
Andrew Scott, Professor and Joint Subject Area Chair of Economics, London Business School (Blog 2/25/2010)
Stephen Cecchetti, Bank for International Settlements (Report 3/2010)
M.S. Mohanty, Bank for International Settlements (Report 3/2010)
Fabrizio Zampolli, Bank for International Settlements (Report 3/2010)
Kent Conrad, U.S. Senator and Chairman of Senate Budget Committee (Chairman’s Mark of FY 2011 Senate Budget Resolution 4/21/2010)
Paul Ryan, U.S. Congressman (Peterson Foundation Fiscal Summit 4/28/2010)
Alan Blinder, Professor of Economics and Public Affairs at Princeton University and former Vice Chairman of the Federal Reserve (Op-Ed 5/20/2010)
Carlo Cottarelli, Director of Fiscal Affairs, IMF (Second Executive Fiscal Commission Meeting 5/26/2010)
Larry Summers, Director, National Economic Council (Washington Post 6/14/2010 and Speech 5/24/2010)
Edmund Andrews, Former New York Times Correspondent (Blog 6/20/2010)
European Central Bank (Monthly Bulletin 6/22/2010)
Erskine Bowles, Co-chairman, National Commission on Fiscal Responsibility and Reform (Commission Meeting 6/30/2010)
Robert Rubin, Former Treasury Secretary (CNN.com 8/8/2010)
David Chavern, Chief Operating Officer, Chamber of Commerce (ChamberPost 10/14/2010)
Christina Romer, Former Chair, Council of Economic Advisors (New York Times 10/24/2010)
The Economist (Article 11/18/2010)
Pete Davis, Capital Gains and Games (Blog 11/27/2010)
National Commission on Fiscal Responsibility and Reform (Fiscal Commission) (Final Proposal 12/1/2010)
Steven Pearlstein, Washington Post columnist (Op-Ed 12/3/2010)
Tom Coburn, Senator (R-OK) (Fox News Interview 12/26/10)
Ezra Klein, Washington Post Contributor (Bloomberg Op-Ed 6/8/11)
Joseph Lieberman, Senator (I-CT) (Washington Post Op-Ed 6/9/11)
Steny Hoyer, U.S Congressmen (D-MD) (CBS Interview 6/12/11)
President Barack Obama (Speech 6/13/11)
Glenn Hubbard, former Chair of the Council on Economic Advisors (Bloomberg Op-Ed 9/19/11)
Douglas Elmendorf, director of the Congressional Budget Office (Hearing, 10/26/2011)
Micheal Bloomberg, Mayor of New York City (I-NY) (Speech, 11/8/2011)
Mark Zandi, Moody’s Analytics (Op-Ed 11/15/2011)
Former President Bill Clinton (Fiscal Summit Interview 5/15/12)
Bill Bradley, Former Senator (D-NJ) (Interview 6/3/12)
* Members of the CRFB Board are: Bill Frenzel, Tim Penny, Charlie Stenholm, Maya MacGuineas, Barry Anderson, Roy Ash, Charles Bowsher, Steve Coll, Dan Crippen, Vic Fazio, Bill Gradison, Jr., William Gray, III, William Hoagland, Douglas Holtz-Eakin, James Jones, Lou Kerr, Jim Kolbe, James Lynn, James McIntyre, Jr., David Minge, Jim Nussle, June O’Neill, Marne Obernauer, Jr., Rudolph Penner, Peter G. Peterson, Robert Reischauer, Alice Rivlin, Martin Sabo, Eugene Steuerle, David Stockman, Paul Volcker, Carol Cox Wait, David Walker, and Joseph Wright, Jr.
Individual statements of CRFB members include:
Alice Rivlin, Brookings Institution and former CBO director (Bloomberg News 1/7/10)
Charlie Stenholm, former Member of Congress (Fort Worth Star-Telegram 12/28/09)
James R. Jones, former Member of Congress (Tulsa World 12/27/09)
Jim Kolbe, former Member of Congress (The Hill 12/18/09)
Tim Penny, former Member of Congress (St. Paul Pioneer-Press 12/14/09)
Bill Frenzel, former Member of Congress (Sphere.com 12/13/09)
Robert Reischauer, President of the Urban Institute and former CBO director (Urban.org 9/10/09)
Eugene Steuerle, Urban Institute Fellow (Urban.org 7/15/10)

Presumably, all of the above people believe a federal deficit is necessary to grow the economy, but announcing a future deficit reduction is necessary — to grow the economy.

You just can’t make this stuff up.

Rodger Malcolm Mitchell
Monetary Sovereignty

P.S. Here is the latest (10/15/12) from the CRFB:

Tax Reform: Reducing Tax Rates and the Deficit
October 15, 2012

There is a growing bipartisan consensus on the merits of enacting comprehensive tax reform that lowers tax rates and broadens the tax base — as was done in the 1986 tax reforms

Ah, the old “broaden the tax base” euphemism. Here’s what the Reagan tax “reforms” accomplished:

Wikipedia: The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15%. This would be the only time in the history of the U.S. income tax (which dates back to the passage of the Revenue Act of 1862) that the top rate was reduced and the bottom rate increased concomitantly.

And that is what the right wingers want.

====================================================================================================================================================

Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

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 Imports

#MONETARY SOVEREIGNTY

–How can we bankrupt America in one easy step?

The federal deficit (red line, below) has exceeded $1 trillion since early in the recession, and the most recent figures show the deficit to be about $1.2 trillion. The reason the deficit is this high: The recession.

Curing a recession requires stimulating Gross Domestic Product (GDP). And GDP = Federal Spending + Non-federal Spending – Net Imports. So curing a recession requires a combination of increased Federal Spending plus reduced taxing (to increase Non-federal Spending), i.e. increased Federal Deficit Spending.

Notice, that in the formula for GDP, Net Imports (shown by the green line) is deducted. This is because Net Import dollars flow out of the country. (By the way, the graph shows an addition of net exports. Net imports and net exports, both being net, actually are the same thing, and because the data are provided as a negative, we need to add them.)

The most recent figures show Net Imports to be somewhat greater than $500 billion. This means that in order for GDP to grow, there first must be enough federal deficit spending to make up for the $500+ billion lost through Net Imports. The bigger the Net Imports, the greater must be Federal Deficit Spending, just to make up for the loss of dollars.

So, the difference between Federal Deficit Spending and Net Imports represents the dollars the federal government adds to the domestic economy. For want of a better name, call that “Net Deficits,” which is shown by the blue line (above), and the most recent data show “Net Deficits” to be about $600 billion.

Is $600 billion a big number in federal government terms? I’ll let you decide. It’s about half the so-called “deficit” that has the debt hawks all in a tither. It’s about ten times the assets of one citizen, Bill Gates. It’s small when compared with GDP:

But there is a larger point to be made — or rather, several larger points:

1. So long as the U.S. continues to be a net importer, it always will be necessary for the federal government to deficit spend, just to break even on our money supply. But breaking even on our money supply, while our population grows (nearly 1% per year), would mean there are fewer dollars available for each man, woman and child in America. So to keep the economy from contracting, deficit spending at least must exceed Net Imports and population growth.

2. Those who wish for a “balanced budget,” actually are wishing the U.S. economy would contract $500 billion per year — at an approximate cost of $5,000 annually, to every household in America. (Compare this with the “debt clocks” that claim the debt costs Americans, when in fact, the debt benefits Americans.) Reducing the deficit reduces GDP.

3. The U.S. federal government, being Monetarily Sovereign, has the unlimited ability to deficit spend, forever. Contrary to popular “wisdom,” there has been zero relationship between federal deficit spending and inflation.

4. The world’s net import/export is zero. Our imports are other nation’s exports. The U.S. pumps %500+ billion into the world’s economies. Were the U.S. to become a net exporter, the entire world would suffer — particularly the monetarily non-sovereign nations, all of which survive long term on net exports.

The terms “balanced budget,” “live within our means,” and “don’t spend what we don’t have” sound oh-so prudent, and they are — for you and me, and the states, counties, cities and euro nations, all of which are monetarily non-sovereign. But when these ideas are applied to a Monetarily Sovereign government, they are totally imprudent — disastrous, actually.

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================

Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

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 Imports

#MONETARY SOVEREIGNTY

–Take this 20 second sanity test.

Gosh, it seems like years ago since we read this:

Pressure Builds on Deficit Panel to ‘Go Big,’ Beyond Its Mandate, in Cuts
By Jackie Calmes, Published: September 12, 2011

WASHINGTON — Led by President Obama, pressure is building on the new Congressional committee on deficit reduction to “go big” — beyond its mandate to shave as much as $1.5 trillion from budget shortfalls over 10 years.

A group of at least 57 prominent business executives and former government officials have signed a petition in support of a greater deficit reduction, which they are to release at a news conference on Monday. Among them are former treasury secretaries, budget directors and economic advisers to eight presidents; former Congressional leaders; and executives of top companies.

Their letter reflects a broad sense of urgency in both parties, and among economists and businesses, that the nation must put in place long-range measures to shrink future deficits.

Only a $1.5 trillion dollar cut? President Obama was a piker. The notorious CRFB published this:

GO BIG
The Committee for a Responsible Federal Budget — along with many other lawmakers, business leaders, former government officials, and organizations — is calling on leaders in Washington to enact a comprehensive deficit-reduction plan of at least $4 trillion to put the U.S. back on a sustainable fiscal path. In order to stabilize and reduce debt as a share of the economy, lawmakers will have be bold and “go big.”

Yes, GO BIG was all the rage. Politicians were falling all over themselves, each trying to demonstrate their inner John Wayne by going bigger than the next guy.

In August we published two posts about this phenomenon of phoolishness: (Trying to survive in this world of debt-hawk finger pointing and voter remorse. GO BIG!! and Congress in Wonderland: Cut the deficit, but don’t cut the deficit. And it’s all their fault. If you haven’t read those articles, you might give them a try.

It now occurs to me, that only two months later, we don’t hear “GO BIG” any more. Suddenly, the realization has set in, as those two little words, “go big” — have been replaced by two other little words — “fiscal cliff.”

In August we showed how the so-called “fiscal cliff” would come from a puny deficit reduction of just $560 billion, and here these politicians and businessmen had been asking for a $4 trillion dollar “GO BIG” deficit reduction. Now “go big” seems magically to have disappeared from the political lexicon.

Such is the intelligence of the American public: Little, two-word slogans can have more effect than all the facts in the world.

We’ve spend fifteen years explaining that when the federal government spends more dollars than it receives in taxes (federal deficit), this adds dollars to the economy (economic surplus). And when the government taxes more dollars than it spends (federal surplus), the economy runs a deficit. Yes, a federal deficit = an economic surplus, which is the only way the economy can grow. And cutting the deficit cuts economic growth.

Now, this shouldn’t be too hard to visualize. Dollars flowing to the government, flow out of the economy, and the fewer dollars the economy has, the less chance it has for growth. Duh!

But the American public didn’t get it. No, it took two words — “fiscal cliff” — to make a point we’ve failed to make for fifteen years. Well, O.K., whatever it takes.

But wait. Both Obama and Romney, and the Republicans and the Democrats, and the media and the old-line economists, have kept right on saying the federal deficit should be reduced. Yikes!

So here’s where we are. Try to follow closely. This is your sanity test:

A “go big,” $4 trillion deficit reduction will “put us on a sustainable fiscal path,” far better than a mere $1.5 trillion deficit reduction. But an even smaller, $500 billion deficit reduction will send us over a “fiscal cliff.” And the economy will grow more if there is an economic deficit than a federal deficit, because people can run short of dollars, while the federal government cannot run short of dollars.

If you understand the above paragraph, please seek immediate psychiatric help. Your doctor will give you medication to calm you when the depressions (financial and emotional) hit.

Rodger Malcolm Mitchell
Monetary Sovereignty

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#MONETARY SOVEREIGNTY

–Washington and the 1% work to increase the income gap via recession

Background: Our Washington politicians are owned by the upper 1% income group, which wants the income gap between them and the other 99% to increase. That is the primary mission of the rich.

To accomplish that goal requires increasing the net incomes of the 1% compared to the net incomes of the 99%. Comparative income is far more important than absolute income.

Reduced federal spending not only leads to recessions, but punishes the 99% far more than the 1%, because the vast majority of federal spending benefits the 99% more. Spending for Medicare, Medicaid, Social Security, defense, etc. all account for a greater percentage of the 99%s income.

GDP (Gross Domestic Product) is the most commonly used measure of our economy.

New York Times
Leaders at Work on Plan to Avert Mandatory Cuts
By Jonathon Weisman, Published: October 1, 2012

WASHINGTON — Senate leaders are closing in on a path for dealing with the “fiscal cliff” facing the country in January, opting to try to use a post election session of Congress to reach agreement on a comprehensive deficit reduction deal rather than a short-term solution.

Senate Democrats and Republicans remain far apart on the details, and House Republicans continue to resist any discussion of tax increases. But lawmakers and aides say that a bipartisan group of senators is coalescing around an ambitious three-step process to avert a series of automatic tax increases and deep spending cuts.

Translation: The “fiscal cliff” would be caused by a combination of spending cuts and tax increases. To avoid the “fiscal cliff,” Congress plans to institute spending cuts and tax increases. Understand?

First, senators would come to an agreement on a deficit reduction target — likely to be around $4 trillion over 10 years — to be reached through revenue raised by an overhaul of the tax code, savings from changes to social programs like Medicare and Social Security, and cuts to federal programs.

Translation: “Deficit reduction target” is identical with a Net Private Savings reduction target (Federal Deficits – Net Imports = Net Private Savings). “Overhaul of the tax code” is identical with increase in taxes collected. “Changes to Medicare and Social Security” is identical with cuts to Medicare and Social Security.

GDP is calculated this way:
GDP = Federal Spending + Non-federal Spending – Net Imports.

Therefore, deficit reduction = GDP reduction = slower growth, or recession or depression.

If those efforts failed, another plan would take effect, probably a close derivative of the proposal by President Obama’s fiscal commission led by Erskine B. Bowles, the Clinton White House chief of staff, and former Senator Alan K. Simpson of Wyoming, a Republican. Those recommendations included changes to Social Security, broad cuts in federal programs and actions that would lower tax rates over all but eliminate or pare enough deductions and credits to yield as much as $2 trillion in additional revenue.

Translation: If Congress fails to cut spending and increase tax collections (either of which would cause a recession or depression), another plan would cut spending and increase tax collections (thereby causing a recession or depression).

House Republicans, favored to retain control regardless of the presidential and Senate results, have not been part of the Senate talks so far and could be difficult to sway to back a package with significant new revenue even if it wins bipartisan Senate support.

Democratic leaders are already signaling a major stumbling block: they will accept no deal that extends Bush-era tax cuts for the rich, even for six months.

Translation: Both parties want to increase the income gap; Republicans want to increase it faster.

Other senators, like Lindsey Graham, Republican of South Carolina, have counseled a more incremental approach to head off mandatory deep military cuts next year. Senator Richard J. Durbin of Illinois, the second-ranking Democrat, had suggested finding enough savings for a six-month delay on taxes and cuts to give negotiators more time.

Translation: Since nothing has been done in the past six months, more time is needed to do more nothing.

But Mr. McConnell compared the government to a ship sinking under the weight of Medicare and Social Security and said that temporarily holding off the automatic budget cuts and tax increases would not avert a disaster.

“Even if we rearrange the chairs, fix the tax thing, fix the sequester, the ship’s still going down,” he said in an interview. “I want to deal with it altogether. The next best opportunity is the end of the year.”

Translation: Budget cuts and tax increases are necessary to cause the recession the 1% wants. But we Republicans refuse all tax increases, which leaves only budget cuts. However, we don’t want cuts to the military budget, which leaves only cuts to Medicare and Social Security, the prime benefits to the lower and middle classes. That is the best way to increase the income gap.

On Monday, the nonpartisan Tax Policy Center released a new study estimating that if nothing is done, the expiration of all the Bush-era tax cuts would raise taxes by more than $500 billion next year alone, an average increase of $3,500 per household. Middle-income families, it said, would see taxes rise by an average of almost $2,000.

Translation: Congress intentionally created this situation, so that “solving it” by reducing tax increases and spending cuts actually would look like a benefit. If the 99% is told their taxes would increase $2,000, and Congress heroically steps in to increase taxes “only” $1,000, the stupid 99% will be happy.

Senator Tom Udall, Democrat of New Mexico, said figures like those and forecasts anticipating a recession if nothing is done have prompted some consideration for postponing any tax increases or spending cuts for a year. But he said lawmakers want to lock in action on the deficit now.

Translation: Big spending cuts and tax increases will cause a big recession. So let’s lock in smaller spending cuts and smaller tax increases, so we can have a smaller recession.

“You have to have the framework of a plan,” he said. “We need to find something that’s going to make us come to the table and put our fiscal house in order.”

Translation: No matter what we do, it only will be a first step. “Fiscal house in order” means no deficit, or better yet, a surplus, thus guaranteeing a depression.

House Speaker John A. Boehner of Ohio says he will not accept any deal that raises tax rates or “decouples” the Bush-era tax rates by extending some but allowing others to expire.

Translation: We have to protect the rich. Hey, we’re Republicans. What did you expect?

Senators have also failed to agree on a mechanism to enforce a deficit reduction plan. Mr. Durbin has suggested that if Congress cannot agree on changes to the tax code, entitlements and spending in six months, the automatic spending cuts and tax increases should go into effect.

Translation: This is the same “fiscal cliff” facing us today, but delayed six months. How’s that for a solution?

But the bipartisan group of senators says that medicine has already proved too tough to swallow. Instead, the backstop should be an acceptable deficit reduction program like Simpson-Bowles.

Translation:Suddenly, Simpson-Bowles, which was so bad, neither party wanted it (and it has to be really bad for both parties to hate it) — suddenly, it has become a viable alternative.

Bottom line: No matter how Congress and the President twist and turn, there is one simple fact that will not go away: GDP = Federal Spending + Non-federal Spending – Net Imports.

There is no way to remove money from the economy without hurting the economy. Period.

The deficit-reduction goal is both harmful and unnecessary for a Monetarily Sovereign nation.

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================

#MONETARY SOVEREIGNTY

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