Tag: recession

–Ignorance: Why you will pay more taxes and receive less service in the coming years.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Here is an article from the Washington Post, demonstrating how ignorance of Monetary Sovereignty is destroying our economy.

Recession-bruised states’ revenue sank 30 percent in 2009, Census Bureau reports

By Michael A. Fletcher, Washington Post Staff Writer , Wednesday, January 5, 2011; 11:09 PM

The recession blew a huge hole in the already shaky finances of state governments, causing them to lose nearly one-third of their revenue in 2009, according to a Census Bureau report released Wednesday. . .

At the same time, states are grappling with swollen social service caseloads, underfunded pension funds and flat revenue – a situation that will worsen as federal stimulus aid comes to a halt in the coming months.

Future federal help is considered highly unlikely, as Congress and President Obama have put a greater emphasis on reducing spending and trimming the huge federal budget deficit.

The new census report adds to the bleak portrait that has emerged from other studies documenting the damage caused by the economic downturn, while making plain that states are likely to continue struggling fiscally for years.

“This report paints a fairly compelling picture of the impact of the recession on states,” said Susan K. Urahn, managing director of the Pew Center on the States. “There are many states predicting that they’re not going to return to pre-recession levels of revenue until 2014.”

Our Monetarily Sovereign, federal government, which has the unlimited ability to create money and pay bills of any size, refuses to give the states the support they need. Meanwhile the monetarily non-sovereign states, which do not have money-creating ability, suffer, and more importantly, we citizens suffer from reduced services and increased taxes.

Education, police and fire protection, roads and bridges, medical services, pensions and on and on, all reduced while our federal government sits on its unlimited pile of cash. Our federal leaders believe they are being fiscally prudent, while in fact, they are destroying America.

Their ignorance hurts us all.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–When will the economy recover?

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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At long last, when will the economy recover? Wait a minute. Look at this graph:

graph 1

Considering that the data only goes through September, 2010, one easily can infer that the economy already has recovered. Yes, the stock market has not recovered, but that could be good news. It could mean it still has plenty of recovery left in it.

And yes, unemployment still is a big problem:

But that could be a good thing, too (although not for those who are unemployed.) A high level of unemployment mitigates against inflation. The government could continue to use its infinite spending ability and not be concerned it was causing inflation. For instance, FICA could be eliminated, as it should be, rather than the tentative, temporary step now taken. And the standard deduction could be raised, also as it should be. And Social Security benefits could be increased, and Medicare could be expanded, again as they should be.

And interest rates have stayed way down:

graph 3

And that’s another good thing, because it means the Fed has plenty of room (not that “room” really is needed) to raise rates if inflation should rear its ugly head.

There are plenty of leading indicators one might explore, but these graphs give me cause for optimism, if only the federal government will seize the moment.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–Democrats eagerly embrace suicide mentality

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Question: What can save the Democrats in the 2012 elections?
Answer: Economic growth.

Question: What will stimulate economic growth?
Answer: Tax benefits, better unemployment benefits, business benefits.

Question: What will provide tax benefits, more unemployment benefits, business benefits?
Answer: The deal President Obama worked out with GOP leaders. It has lots of tax benefits for everyone. The Bush tax reductions remain. Capital gains and dividend taxes remain at 15%. FICA is reduced. The “death tax” didn’t go as high as people feared. Unemployment benefits were lengthened.

Question: What has the Democrats angry?
Answer: The deal President Obama worked out with GOP leaders.

Question: Why are the Democrats angry at the one bill that can get them re-elected in 2012?
Answer: They campaigned on the pledge to stick it to the wealthy. This bill doesn’t stick it to the wealthy — at least not enough. This bill moderately benefits the entire country. The Democrats now are in the “Cut-my-nose-to-spite-my-face” mode, except they also are willing to spite all of America. There was a time when we all could laugh at ignorant politicians. Today, when they actively aim to harm America, they aren’t quite as funny.

By the way, did you notice how they slid in that reduction in FICA, which we recommended 15 months ago (Ten Reasons to Eliminate FICA ) and which my book, FREE MONEY, recommended 12 years ago. But hey, better late than never. As usual, they did only a partial job, but what can you expect?

Anyway, soon you’ll see all the misguided debt-hawk columnists prattle on about how this FICA reduction will make Social Security go bankrupt sooner. Tell me, who understands economics less, the columnists or the politicians?

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–How to fight inflation and how not to.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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I know this is a strange time to talk about fighting inflation. Recently we struggled up from a minus inflation (aka “deflation”) and now are at a puny 1% level. But too often, when I say that federal deficit spending should increase, a debt-hysteric concern expressed to me, is not just inflation, but the typical debt-hawk exaggeration: hyperinflation!

The debt-hawks seem to be the kind of folks who, upon seeing a starving child, would not feed that child for fear the food would cause obesity. Today, our economy is starved for money, but the debt hawks fear monetary obesity (aka “inflation”) and they warn us of wheelbarrows full of money. They give silly speeches about what they term “fiscal prudence” and what I term, “starving the baby.”

So as long as we must face debt hysteria, and the hysteria has to do with a non-existent though dreaded inflation, we might as well talk about preventing and curing inflation. Inflation is the loss in value of money compared to the value of goods and services.

So, there are two fundamental methods for curing inflation: Reduce the supply of money or increase the demand for money. Both methods increase the value of money vs the value of goods and services. (In theory, increasing the supply of goods and services or decreasing the demand for goods and services also would work, but there is no known method for accomplishing this without changing the money supply.)

Ideally, any anti-inflationary activity should be effective, quick to activate, quick to take effect, incremental, easy to rescind and not damaging to the economy. But while tax increases remove money from the economy, and so can be effective, they fail all the other tests. They are highly political; They are slow to pass through Congress. They take effect slowly, because taxes are collected slowly. They cannot be passed and implemented incrementally. They are difficult to undo. And they damage the economy. The require answers to difficult questions: Exactly which taxes should be increased? By how much? Should we have a tax increase during a stagflation? How do we calibrate an incremental tax increase?

Compare this approach with another approach: Interest rate increases. Interestingly, interest rate increases have both pro-inflation and anti-inflation effects. Pro inflation: Increase in business costs and increase in the money supply due to increased federal interest payments. Anti-inflation: Increase in the demand for money vs the demand for non-money.

On balance, the anti-inflation effects are stronger. One hint is this graph: graph 1that seems to indicate interest rate increases are followed about one year later by inflation decreases.

The other hint is the Fed’s ongoing success in controlling inflation despite massive increases in the money supply. Interest rate increases actually work.

Interest rate increases can be done quickly and in small or large increments — just what is needed for inflation control. And contrary to popular faith, high interest rates do not negatively affect GDP growth. See: Interest

In summary:
–We are nowhere near inflation
–We can control inflation by raising interest rates
–High interest rates do not negatively affect GDP growth

We can and should feed the starving economy without letting unfounded worries about our ability to prevent or cure the economy’s obesity, prevent us from saving the child.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”