–What are the greatest threats to our economy?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Here are two brief questions to those who wish to cut the federal debt:
-When do recessions begin?
-What cures them?

Recessions begin with reduced debt growth and are cured by increased debt growth.

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The following is a brief message to those who claim federal deficit spending is in danger of causing inflation or hyperinflation.

In more than 60 years, there has been no relationship between deficit spending and inflation, which today is at a low level.

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The following is a brief message to those who claim removing debt from the economy will stimulate economic growth:

Debt growth and GDP growth parallel.

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The following is a brief message to those who feel inflation is a greater, more imminent problem than recession:

Inflation is low; GDP growth is low.

So tell me, what is the greatest threat to our economy?

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.

MONETARY SOVEREIGNTY

–Welcome to the United States of Lemming

Welcome to the United States of Lemming.

Like the proverbial lemmings, who commit suicide by following their leaders off a cliff, our leaders take our nation off an economic cliff and we blindly follow. In the United States of Lemming, there is a myth and there are facts. “Everyone” believes the myth, and “no one” believes the facts.

Here is the myth. The federal deficit and debt are too high, unsustainable, a drag on our economy, a burden on our government and an impediment to economic growth.

Here are the facts:

1. Reduced deficit growth leads to recessions. Look at this graph and tell me when recessions begin and how they are ended:

That’s right. Recessions begin after a series of declines in deficit growth. Recessions end with increases in deficit spending. Now our government again plans to cause the next recession by cutting deficit spending.

Our lemming government leads us over the economic cliff.

2. Federal deficits = net non-federal savings – current account deficit. This is an accounting identity.

The current account = money flowing out the the country. This includes imports above exports (balance of trade), interest paid and foreign aid. For the U.S., the current account almost always is negative, meaning more money flows out of the country than into the country. To keep the domestic money supply from falling, the federal government always must run a deficit.

The rest of the deficit goes to net savings. In simplest terms, net savings are your dollars minus your debt. If you have $1,000 in the bank, but owe $200, your net savings are $800. The only source of net savings is federal government deficits. Without federal deficits, there can be no net savings. This is an accounting fact.

A deficit reduction of $1 trillion = a net savings reduction of $1 trillion for the non-federal sector (you and me). With 300+ million people in America, every $3 trillion in deficit reduction causes a $10,000 loss in each person’s net savings. That’s $10,000 taken out of your pocket, an additional $10,000 taken from your spouse, and $10,000 taken from each of your children. What do you think that will do to our economy and your personal finances?

Our lemming government leads us over the economic cliff.

3. Debt reduction (federal surplus) results in depressions:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

The reason is clear. Federal surplus = economic deficit. This too is an accounting identity. Federal debt is a reflection of federal deficits — the amount of money the federal government adds to the economy. For debt to be reduced, not only must deficits be reduced; they must be entirely eliminated. Federal surplus is an extreme form of deficit reduction.

Our current account already draws money from our economy. Combine that draw-down with a federal surplus, which also pulls money from our economy, and you create a massive, economic money loss. Our most recent federal surplus came at the end of the Clinton administration. Because the surplus was brief, it caused only a recession, which was cured by the Bush deficits. Had the surplus lasted longer, it would have caused a depression.

Our lemming government leads us over the economic cliff.

4. In 1971, the U.S. went off the gold standard, and became Monetarily Sovereign.. The purpose and the effect was to give the U.S. the unlimited ability to pay any bills of any size at any time.

To pay a bill, the federal government instructs a creditor’s bank to mark up the creditor’s checking account. This process erroneously is termed “printing money,” but nothing is printed.

When you and I pay a bill, money is transferred from our account to our creditors account. By contrast, when the federal government pays a bill no money is transferred. Instead, the creditor’s checking account is marked up and money is created by the payment of the government’s debt.

Because no money is transferred, no taxes or borrowing are required for the government to send these mark-up instructions. If taxes and borrowing fell to $0 or rose to $100 trillion, neither event would affect by even one penny, the federal government’s ability to pay its bills.

Despite concerns that deficits may cause inflation, historically this has not been the case. The value of money is determined by two factors: supply and demand. Inflation concerns center on increased supply. But increased demand is anti-inflationary. Demand increases when interest rates rise or when the value of goods and services increases. Both effects have been responsible for this graph, showing no relationship between federal deficits and inflation:

Deficit spending has not caused inflation. Yet, for unknown reasons, the federal plan, agreed to by virtually all media, all politicians and all old-line economists, is to cut deficits and reduce the money supply and our savings.

Our lemming government leads us over the economic cliff.

5. “Debt Outstanding Domestic Nonfinancial Sectors” is the measure of all forms of money in the nation. As you can see, this total debt growth parallels Gross Domestic Product, the most commonly used measure of economic growth.

By cutting federal deficits, the government will reduce Domestic Nonfinancial Debt which will reduce Gross Domestic Product.

The only way to stop this suicidal march is for each of us to contact the media, contact the politicians, even contact a professor you may know, and give them the facts.

Or, like the mythical lemmings, we can follow the crowd, accept our fate and jump over the recession and depression cliff.

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

MONETARY SOVEREIGNTY

–Be careful what you wish for, Mr. President.

President Obama is operating under the confusing myth that while deficit spending is stimulative, deficit spending should be reduced or even eliminated. So he has advocated a “grand bargain” to cut deficits, a plan which will lead us first to recession, then to depression. Guaranteed.

Washington Post, By Alec MacGillis and Lori Montgomery, July 16, 2011.

Even as President Obama and congressional leaders focus on a fallback plan to lift the nation’s debt ceiling, top Democrats and Republicans have begun to map a new way to craft the same sort of ambitious deficit-cutting plan they abandoned last week.

As part of the deal being discussed to raise the debt ceiling, leaders on Capitol Hill are forming an especially powerful congressional committee that would be charged with drawing up a new “grand bargain,” possibly by the end of the year.

Key elements for a big deal remain in place. Obama has been clear that he wants one and has started making the case to skeptical factions of his own party that getting the nation’s fiscal house in order is in their best interest. House Speaker John A. Boehner (R-Ohio) also remains committed to an ambitious plan, having told his troops that he didn’t become speaker to do small things. And, perhaps most critically, the markets are demanding it. The credit rating agency Standard & Poor’s says Washington must agree to reduce the debt by $4 trillion over 10 years to avert a downgrade.

The Democrats want it. The Republicans demand it. The Tea Party insists on it. The credit agencies advocate it. What possibly could go wrong?

“We cannot as a country fail to deal with the debt threat,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.), one of the bipartisan “Gang of Six” senators who tried to reach an agreement in recent months. “Every serious economic analysis tells us we’ve reached the danger zone. And just kicking the can down the road? That can’t be. We’re better than that. We’ve got to be better than that.”

Er . . . ah . . . exactly what is the “debt threat”? Is it that the government will be unable to pay its bills? No, the government has the unlimited ability to pay its bills. That was the reason we went off the gold standard.

Is it that taxes will need to be raised? No, the government does not use tax money to pay its bills. In fact if taxes were reduced to $0 or increased to $100 trillion, neither event would affect the government’s ability to pay its bills.

Is it that federal deficit spending will cause inflation? No, contrary to what the Tea Party tells you, there has been no relationship between federal deficits and inflation. See: Cause of Inflation

Is it that foreign countries will stop lending to us? No, since we went off the gold standard in 1971, the federal government has had no need to borrow the dollars it can create without limit. If the Treasury stopped issuing T-securities, this would have no effect on the government’s ability to pay its bills. We could “pay off”China tomorrow at the press of a computer key.

Is it that “future generations” will pay for the debt? No, the debt merely is the total of outstanding T-securities, which the government services by crediting the bank accounts of T-security holders. It can do this endlessly. Nobody pays, not today’s generation, nor tomorrow’s. But future generations will pay by receiving less Social Security, less Medicare, less Medicaid — in short, our children and grandchildren will lead worse lives because of deficit cutting today.

So what is the “debt threat.” No one knows, and no one specifically says, but by heaven, we simply must deal with it somehow, even if we destroy the economy.

But hopes for a grand resolution in coming months face the same question that hangs over the current crisis: whether tea-party-aligned conservatives in Congress who forced the debt-ceiling showdown will provide the necessary votes for an eventual major deal, even if it includes new taxes.

Well, if it has Tea Party support, it must be good. We all know what brilliant economists those folks are.

The Gang of Six — which tried to come up with its own plan — disbanded last week after failing to reach agreement on how to cut spending and raise taxes. Meanwhile, the big deal pursued by Obama and Boehner faltered amid criticism from congressional Republicans opposed to additional revenue.

House Majority Leader Eric Cantor (R-Va.), who has emerged as the leader of this contingent, has argued against such a deal. But his views may be shifting along with those of some rank-and-file House Republicans whose imaginations have been captivated by the idea of slicing as much as $5 trillion out of the federal budget over the next decade.

In a caucus meeting last week, some freshmen wanted to know whether they could slice that much out of the budget in the next two years, GOP aides said. (Answer: no. The entire federal government is expected to spend about $3.6 trillion this year.)

Ah, those freshmen. They have proved they have no idea what they are talking about, but they sure are loud. So I guess we should respect their opinions.

In public at least, conservatives are maintaining that the answer is to “cut, cap and balance” — passing a balanced-budget amendment that would cap federal spending at 18 percent of the nation’s gross domestic product, down from its current 24 percent.

I can’t think of a better way to assure an ongoing recession or even a depression than to limit the amount of money the federal government can add to the economy.

The House is expected to vote Tuesday on such an amendment, but it has scant odds of getting the needed supermajority in the Senate. Democrats say an 18 percent cap in a country with an aging population and rising health-care costs would lead to ruinous cuts.

But conservatives said Saturday that they are holding out for the amendment and are not ready to accept a stopgap measure being put together by Senate leaders Mitch McConnell (R-Ky.) and Harry M. Reid (D-Nev.) that would raise the debt ceiling before the nation hits its borrowing limit Aug. 2.

“I didn’t get elected to punt this problem down the road another six months,” said Rep. Jason Chaffetz (R-Utah). “We are the body, we are the commission to make these tough decisions. . . . Guys like me are not coming along. We’re not going along just to get along.”

Translation: “We don’t care about ruinous cuts. We don’t care about the economy. We just want to do what the Tea Party tells us to do, so we can get elected, again. We have our priorities.

Under the stopgap plan, Congress would allow Obama to raise the debt ceiling in three increments totalling $2.5 trillion over the next year. Each time, Congress would vote on a resolution of disapproval, allowing Republicans to blame the increases on Obama.

Can anyone take these guys seriously. They propose a complex, convoluted plan that allows them to avoid all responsibility for the disastrous results. Our brave Congress at work.

The commission recommended saving $3.8 trillion by raising the retirement age for Social Security, slashing spending across government and wiping out more than $100 billion a year in popular tax breaks, including the tax deduction for mortgage interest and the tax-free treatment of employer-provided health insurance. It recommended larger Pentagon cuts and revenue increases than the White House sought this month.

Obama countered last week that Democrats should want a major fiscal deal, because it would make it easier to win approval for spending on their priorities in the next few years.

“If you care about making investments in our kids and making investments in our infrastructure and making investments in basic research,” he said, “then you should want our fiscal house in order so that every time we propose a new initiative somebody doesn’t just throw up their hands and say, ‘Ah, more big spending, more government.’ ”

Let’s see. You want to cut Medicare and health coverage, but you also want to increase investments in research, infrastructure and “our kids.” So you want the elderly and the sick to pay for roads and research. Great plan, Mr. President.

Here is the bottom line. Money is the lifeblood of an economy. A growing economy requires a growing supply of money. Federal deficit spending is the method by which the federal government adds this “lifeblood” to the economy. Today’s economy is starved for money. Cutting federal deficit spending is like applying leeches to cure anemia.

Whichever deficit-cutting plan is being debated in Congress, I absolutely, positively guarantee it will cause a recession that will make the last recession look like a walk in the park. The public has been sold a bill of goods about the so-called dangers of deficits, and we all will pay the price of ignorance.

Be careful what you wish for, Mr. President. If you get what you want, it will come back to bite you in the butt. You will take your place in history, right beside Herbert Hoover, as the guy who through ignorance caused the next Great Depression. That will be your legacy.

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

MONETARY SOVEREIGNTY

–What is our priority: The recession and joblessness — or inflation?

If you drove your car onto a railroad track, while a train was bearing down on you, would you worry about the price of gas, or would you step on the accelerator to get out of the way?

Clearly, the more immediate problem is the train. But according to debt-hawk thinking, you should ignore the immediate problem and wait until gas prices come down. Today, the Tea/Republican party is worried that federal servicing of deficits causes inflation . They wrongly claim that for the federal government to service larger deficits, it must “print” so much money eventually there will be inflation, even hyperinflation..

As always, the Tea/Republicans are wrong: Federal government borrowing does not increase the money supply. Borrowing is a simple asset exchange, in which T-securities are created and traded for dollars, which are destroyed. The servicing of federal debt is the exact opposite. Dollars are traded for T-securities and the T-securities are destroyed. During the entire process, no inflationary money is created.

Which is one reason federal deficit spending has not been associated with inflation since 1971, when we went off the gold standard and became Monetarily Sovereign. (See the following graph)

Yes, let’s forget that the Tea/Republicans simply do not know what they are talking about from a factual standpoint, and instead let’s focus on priorities. Look at the graph below, and tell me whether today’s priority is inflation or recession/joblessness.

Clearly, today’s priority is the weakness of the economy and unemployment. The economy is starved for money. To treat a starving patient, you must feed him. How do you feed a starving economy? By giving it money. How do you give an economy money? Via federal deficit spending.

But, debt-hawk Tea/Republicans will tell you that adding ”infinite” money to the economy (a straw man nobody is recommending) will cause inflation and even hyperinflation. Oh really?

Here is an excerpt from an article in Time Magazine:

Inflation Falls: Is the Economy Saved or Doomed?
Posted by STEPHEN GANDEL Friday, July 15, 2011

Gas prices fell last month, prompting the first drop in overall prices in a year. (Lucy Nicholson / Reuters)

Inflation in June fell for the first time in a more than a year. The Consumer Price Index (CPI), which is the government’s most widely watched gauge of what the things average Americans buy cost, fell 0.2% last month. The drop was mostly driven by a fall in gas prices, which were down nearly 7% alone in June.

Lest you think that gas prices were the sole cause of low inflation, take another look at the first chart. The red line is total Consumer Price Index. The black line is CPI less food and energy. Both are headed down.

And, even when inflation eventually crops up, the Fed can increase the value of the dollar (fight inflation), by raising interest rates to increase the demand for money. That is the way the Fed has controlled inflation for many years.

So tell me, which is the more immediate problem, the recession/joblessness or inflation? Are you the type who would not drive off the tracks until gas prices come down? If you are, then welcome to the Tea/Republican Party.

Historians will look back at 2011 and shake their heads at the suicidal bent of the Tea/Republicans and even the Democrats. The notion that federal deficit spending, which adds money to the economy, should be reduced at a time of economic starvation, is so unbelievably wrong-headed, future economists will say, ‘What were these fools thinking? At just the time they should have been adding money to the economy, they were searching for ways to bleed money out of the economy.

Of course, The debt debate has nothing to do with the economy. It’s just economic blackmail for political power. Neither the Democrats nor the Tea/Republicans give a damn about the people of this nation. The sole concern is who wins the next election. So when you see these phonies, giving their speeches (inevitably standing in front of American flags, the bigger the better), realize they don’t care about America. Not even a little bit. It’s all about them and their lust for power.

What would you call a person, who deliberately endangers America, who actually is willing to sacrifice America, just to advance his own career? I’d call him a traitor.

That will be the legacy of today’s politicians, and the media and old-line economists who went along with this travesty, and that is the pain our generation will cause our children and our grandchildren.

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

MONETARY SOVEREIGNTY

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