Tag: reduce the nation’s red ink

–Why bank lending leads to recessions. A counter-intuitive finding.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Thirteen months ago, I published a post titled, “Is federal money better than other money.” I believed it was one of the more interesting posts in this long series, because it showed that while reduced federal debt growth led to recessions, increased non-federal debt growth also led to recessions.

At the time, the data stopped at February, 2002. I now have brought the data forward, and am republishing. These new data support the previous findings.

In other posts on this blog, we have discussed how reductions in federal debt growth, as shown by the following graph, “Federal Debt Held By Private Investors,” immediately precede recessions. This comes as no surprise, since a growing economy requires a growing supply of money, and deficit spending is the federal government’s method for adding money to the economy.

Federal debt

Clearly, federal debt/money growth is essential to keep us out of recessions. Yet, when we look at “Debt Outstanding Domestic Nonfinancial Sectors” which includes not only Federal debt, but also outstanding credit market debt of state and local governments, and private nonfinancial sectors (tan line), we do not see the same pattern.

In fact, when we subtract federal debt from total debt, leaving only state, local and private debt, we see the opposite pattern. Recessions follow increases in state, local and private debt!

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STATE, LOCAL AND PRIVATE DEBT, PERCENT CHANGE FROM YEAR AGO

Now in one sense, money is money. Your buying on your credit card creates debt/money, just as federal deficit spending creates debt/money. Presumably, both should have the same stimulative effect on the economy. They do, but not long term. Why?

Because, unlike the federal government, you, your business and local governments cannot create new money endlessly to service your debts. Your debts can pile up to the point where you must liquidate them by paying them off or by going bankrupt. When non-federal debts become too large, a growing number of people, states, cities and businesses must pull back and stop further borrowing, i.e. stop creating money, or even destroy money by paying off loans. When that happens, we have a recession.

(As an aside, this is one reason the early stimulus efforts had so little effect. People used the stimulus money to pay off loans, so while the federal deficit spending created money, the loan pay-downs destroyed it. Debt reduction destroys debt/money.)

During the recession, and for a short time after, we tend to cut back on our personal borrowing and liquidate debt/money. Then we begin to resume borrowing, more and more, until again, we hit our personal limits and cut back, causing yet another recession. The sole prevention of this cycle, which averages about 5 years in length, is to make sure that federal deficit spending grows sufficiently to offset periodic money destruction by the private sector.

In summary, federal deficit spending is good for the economy, always good, endlessly good (up to the point of inflation). Private and local government spending/borrowing also is good, but not endlessly. Unlike the federal government, the private and local-government sectors eventually reach a point where debt is unaffordable and unsustainable.

To prevent recessions, the government continuously must provide stimulus spending, then provide added stimulus spending to offset the periodic reduction of money creation by the private sector.
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These data call into question the popular belief that encouraging bank lending stimulates the economy. While short-term effects may be positive, long-term bank lending seems to lead to recessions, as servicing loans becomes ever more onerous for the monetarily non-sovereign sectors. In contrast, Federal deficit spending easily is serviced by the government, and therefore is preferable to private borrowing as a stimulus.
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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 says: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–Obama joins the Tea Party

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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In a previous post I asked whether President Obama was a Coward, fool or traitor to America. We now have our answer.

This article by Lori Montgomery, ran in the 7/7/2011 Washington Post: Obama offers Social Security cuts. A few quotes:

President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.

Not only does he wish to raise taxes, an anti-stimulus move, but he is ready to cut Social Security benefits — anti-stimulus and anti-working class.

At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.

It is the same rare consensus that said the world is flat, the earth is the center of the universe and the gods live on Mount Olympus — in short, a consensus of fools.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal.

In joining the Tea Party, Obama shows himself to be all three: Coward, fool and traitor to America. The battle is over, folks. Take down your flag and go home. Your leader has surrendered to buy some votes, and America will pay the price.

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


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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

–S.O.S. Signs of Stupidity. The perfect storm that engulfs us.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Nations are like people; they just tend to live longer. And like people, nations have individual personalities, individual beliefs, individual histories. There are Italian ethics, Russian mores, American values that transcend and affect those of any individual. Entire nations can go through periods when they exhibit brilliance, periods when they exhibit madness and periods when they exhibit stupidity.

Late 17th century – early 18th century Europe, particularly France, exhibited the brilliance that became known as the Age of Enlightenment. Late 1930’s – early 1940’s Germany exhibited the madness that created World War II and the Holocaust. The Early Middle Ages (some term the “Dark Ages”) were times when nations (tribes, really) exhibited abject stupidity akin to self immolation.

Today, America experiences a confluence of signs of stupidity (S.O.S.), some longstanding, some transient, some quite new – a perfect storm of stupidity – that could lead to our degeneration and downfall. I have listed, without ranking or qualification, some of the S.O.S. we now experience.

Anti-gay marriage
Anti-vaccination
Birthers
Congress (special nod to Rep. Michele Bachmann)
Creationism (aka “intellegent design”)
Drunks
Emailing, cell-phoning, messaging or social networking anything private
Fed Chairmen Alan Greenspan and Ben Bernanke
Federally sanctioned torture
FICA
Flag wavers
Flood plain building
Forest fire fighting
Fox “News”
Governors Rick Perry, Nathan Deal and Jan Brewer
Illinois governors (pardon my bias)
Government actions against Wikileaks
Hummers
Immigration laws; anti-immigration laws
National Rifle Association
News editors (special nod to Chicago Tribune, N.Y. Times, Wall Street Journal)
Old-line economists and the columnists who parrot them
Patriot Act
Rap music
Religious fundamentalists
Sarah Palin
Smoking
Suicide bombers
Supreme Court Justices Clarence Thomas, Antonin Scalia.
Tea/Republican Party (Democrats too, though less so)
Texting, phoning, eating while driving
The EU and the euro
The war on drugs; illegal drug users
Treasury Department Secretary Timothy F. Geithner
U.S. “debt” (aka “T-securities”) debt ceiling, balanced budget, austerity
Wars since WWII (special nod to current Mideast wars)
This list.

Please feel free to edit, disagree or supplement, before the light of intelligence flickers out and you no longer can.

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


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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

Coward, fool or traitor to America?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Paul Krugman wrote an article, the beginning of which I’ll quote:

Barack Herbert Hoover Obama
From today’s radio address:

“Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”

Yep, the false government-family equivalence, the myth of expansionary austerity, and the confidence fairy, all in just two sentences.

In one, succinct line, Krugman has summarized the destructive fantasy foisted on America by the Tea/Republican Party, and swallowed by the Democrats, the media, the bloggers and the public. Let’s parse Obama’s comments:

“Government has to start living within its means, just like families do.“

I can’t imagine how a President could express more utter economic foolishness than this. First, there is no comparison between federal finances and family finances. The federal government is unique. It is Monetarily Sovereign, meaning it has the unlimited ability to pay any bills of any size, any time.

If the government owed you $100 trillion (!), the government would pay your bill by instructing your bank to credit your checking account $100 trillion. This would require the press of a computer button. No money would move from the government to your bank. Instead, your bank simply would change the numbers in your account to reflect that additional $100 trillion. Bill paid. Period. This is how the federal governments pays all its debts, and is the reason the entire debt ceiling argument, as well as the debt ceiling itself, is an exercise in ignorance.

Families, on the other hand, are monetarily non-sovereign. You do not have the power to instruct a bank to mark up someone’s account. The best you can do is give someone a check, which is a set of instructions to your bank, to mark down your account, while your bank instructs your creditor’s bank to mark up his account. But your bank won’t do it unless you have sufficient balance in your account.

The same limitation exists for other monetarily non-sovereign entities such as businesses, states, counties and cities. The federal government, being Monetarily Sovereign, faces no such limitation.

The fact that the President of the United States, with all his advisers, either doesn’t know the differences between Monetary Sovereignty and monetary non-sovereignty — or is too contemptuous of the voting public to explain the differences — is an indictment of the man. He now is trapped by his own misstatements. His lies have begot bigger lies, while the truth would have set him free.

Then, there is,

“We have to cut the spending we can’t afford so we can put the economy on sounder footing . . .”

Since there is no spending the federal government can’t afford, what the hell is he talking about? And, would someone please tell me the mechanism by which reduced federal spending puts the economy on a “sounder footing.” To my thinking, a sounder footing would mean more jobs, more growth, more prosperity. How does reduced money growth accomplish that?

So, how does less federal money help business? How do increased taxes help business? How does cutting Medicare, Social Security and Medicaid benefits — all dollars paid to consumers — help the economy?

Finally, we have:

“. . .and give our businesses the confidence they need to grow and create jobs.”

The notion that confidence grows business and creates jobs — what a ridiculous myth. Business growth creates confidence and not the other way around. America was loaded with confidence, just before the Great Depression. America also was loaded with confidence just before the most recent recession. America always is loaded with confidence when business is good and people are working.

The idea that in some strange way, cutting federal money creation will create confidence which will stimulate business — despite a lack of money — is beyond ignorant. It is downright stupid. And the fact that our President mouths these obscene platitudes is beyond frightening. It is disgusting.

I’ll end this by admitting that I voted for Obama. Call it the Palin effect. Call it my liberal bias. Call it home cooking (I’m a Chicagoan.) So for me, this guy has been disappointment squared. He oversaw the “universal” (almost) health care program, by letting other Democrats fight for it. He reportedly made a brave decision regarding bin Laden. But, he either has been clueless or gutless when it comes to the economy.

I can understand the public not understanding Monetary Sovereignty; the media deny it exists. I can understand the media not understanding Monetary Sovereignty; the old-line economists deny it exists. I can understand the old-line economists not understanding Monetary Sovereignty; they have been giving the same classroom lectures since the gold standard days (when we were not Monetarily Sovereign), and one can’t teach egotistical old professors new ideas.

But, it angers me that the President of the United States, the leader of the free world, the most powerful man on earth, does not or will not understand the simple truths that: The federal government has no “means” to live within; the federal government is not in any way like families or like any other American institution; the federal government can “afford” anything simply by crediting bank accounts; reduced federal spending reduces the economy’s money supply which reduces growth; and confidence does not grow an economy, money does.

Or is this all just a traitorous politician’s “say-anything-and-do-anything” for personal power, and to hell with the American people? Whichever it is, Mr. Obama, you are a major disappointment, a leader from the rear, whose reelection will be salvaged only by the likes of Michelle Bachmann et al.

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


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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY