Tag: Rodger Malcolm Mitchell

–How to end federal debt and create prosperity in two simple steps

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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Now comes protectionism. To quote today’s AP article titled, “Bickering political parties share China as target”: “Democrats and Republicans are accusing each other of cozying up to Beijing and backing policies that send U.S. jobs and IOUs to the world’s second-largest economy.”

So China is today’s whipping boy, deflecting the blame from our politicians. Nothing ever is their fault. The problems always are caused by some other country, or the Fed, or the banks, or the “other” party, or the rich, or the poor, or the unions, or the corporations, or the PACs, or the lobbyists, or the war, or the right wing, or the left wing, or the Communists, or the terrorists.

No folks, our economic problems lie squarely on the shoulders of Congress and the President, and much (not all) boils down to one false belief, that taxes pay for federal spending. Amazing isn’t it, how many problems result from this one giant misunderstanding?

If the federal government simply stopped creating T-securities from thin air, there would be no debt, therefore no IOUs. And if the federal government simply eliminated FICA, millions of American jobs would be created and saved.

In 1971 we ended the gold standard and no one remembers why. Instead, the uninformed are led by the ignorant (or is it the other way around?), as we continue to act as though we were part of the European Union, with its stultifying limitations on money creation.

Two simple steps – end T-securities and end FICA – would eliminate debt and tax concerns and create instant prosperity. Can it get any easier? Tell your Congress people.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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 the Republican strategy won

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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If the Democrats take a beating this coming election, as is predicted, they have only themselves to blame. The Republicans want the economy to stay weak, giving them the opportunity to remove the recession blame from President Bush and to hang it on President Obama. So they have directed their efforts toward reinforcing the myth that federal deficits are bad, the federal debt is worse, and anything that is not austerity is worst of all.

This wonderful, though cynical strategy guaranteed a weak recovery, hurting the Democrats, while hurting the American people, worse. But hey, who cares about that?

The Democrats, rather than educating the public about federal finance, allowed the Republicans to stigmatize any recovery effort that required deficit spending. Either through ignorance or spinelessness, they fell right into the Republicans’ trap, thereby guaranteeing not only a continuation of economic weakness, but a loss this coming Tuesday. They now suffer, and we the people, suffer, though most of the people don’t know why.

The only thing that can create a recovery is deficit spending, the more the better, but the Democrats never tried to get that message across. They even agreed with the Republicans about the evils of federal debt. Talk about slashing your own throat.

The Republicans have succeeded. Deficit spending has been too little, too late, as I predicted way back in Letter dated April, 2008. The Democrats struggled to spend while not spending, the Republicans threatened to filibuster everything that smacked of deficit, the Democrats cowered in terror, and the economy languished.

What should the Democrats have done? Simple. Tell the truth. Rather than believing the voting public is too stupid to understand facts, the Democrats should have instituted a two-year educational program, starting immediately after the Obama election. Yes, at first the public would have rejected the counter-intuitive ideas that deficit spending is absolutely necessary for growth, our children and grandchildren will not pay for federal spending, and inflation is not a serious threat. But over time, these fact-based ideas would seem less radical, more acceptable and ultimately, desirable, because well . . . they’re fact-based.

That would have allowed the Democrats to improve Social Security, enhance Medicare, provide universal health care, save the economy and win the election. Oh well, there’s another election in two years. Maybe the Democrats will smarten up or “courage-up” in time.

On second thought, doubtful.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–Which adds to federal debt — federal spending or federal borrowing?

The debt hawks are to economics as the creationists are to biology.

Which adds to the federal debt — federal spending or federal borrowing? Before you read further, think about this question and your answer.

The federal government’s finances are nothing like yours and mine, which is why the economy is so counter-intuitive. Most people worry about the federal debt. They are influenced by the media and the pundits, who also worry about the federal debt. And in turn, they are influenced by mainstream economists, who as college students, were taught to worry about the federal debt. This “debt-worry” translates into “spending-worry,” so we hear continual calls for less government spending. But does federal spending really add to federal debt?

You and I cannot print money. So, before we spend, you and I must have sources of money. We either must have money in hand or we must have a ready source of borrowing, the most popular of which is a credit card. Without a source of money, you and I cannot spend. The states counties and cities are in the same predicament. Without a source of money, they cannot spend.

The federal government is different. Or it can send you a check, and when you deposit that check, your bank will mark up your account and the federal government will mark up the bank’s account, and it can do this endlessly, without having any source of money.

When the federal government spends, money is created from nothing. But no debt is created, at least not the federal debt referred to in “debt clocks” or by media editors.

So what does create the federal debt? The creation and sale of T-securities. The federal government not only has the unlimited power to create money from thin air, it also has the unlimited power to create T-securities from thin air, and then exchange these T-securities for dollars it previously created from thin air.

There are two separate processes, unrelated by function, though related by law. Process #1 is federal spending, which requires the creation of dollars by printing currency or by crediting bank accounts. Process #2 is federal borrowing, i.e. the creation and sale of T-securities. Functionally, either of these processes can take place without the other. The federal government can spend without borrowing, and it can borrow without spending.

While federal spending leads to the Deficit (the difference between spending and tax receipts), federal borrowing leads to the Debt (the total of outstanding T-securities). In this way, the federal debt would not necessarily be the total of federal deficits, except for an obsolete law that requires it.

By law, the U.S. Treasury must sell enough T-securities to equal the deficit – the difference between federal spending and federal tax receipts. This law is a relic of gold standard days, when the federal government did not have the unlimited ability to create money. Back then, dollars had to be matched by gold, and so were limited by gold supplies.

But for this law, there would be no need for federal borrowing and there would be no federal debt. The government simply would spend by creating money, i.e. by crediting bank accounts.

In summary, federal spending does not add to the much feared, often maligned federal debt. Instead, the federal debt is created by an obsolete law, which requires T-security creation to equal federal deficits. So debt-worriers, there is no need to cut federal spending. Merely change that needless law. No law; no debt.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”

–Japan, Ireland, Greece: Facts vs. Mainstream Economists

The debt hawks are to economics as the creationists are to biology.

The mainstream economists never change, but my hope is if I continue to demonstrate the inconsistencies of mainstream economics, eventually the word will get to the politicians, the media and the public. Here is a quick sampling of 10/26/10 AP articles:

“TOKYO — Japan’s Cabinet approved an extra budget to help finance $63 billion of stimulus spending aimed at spurring the country’s lackluster economy as it battles deflation and a strong yen.”

The CIA’s World Factbook 2010 shows Japan’s Debt/GDP at 189%. According to mainstream economics (aka debt-hawk economics), that Debt/GDP ratio should force a terrible inflation on Japan, and its debt should be “unsustainable.” But Japan is battling deflation, and seems to have so little difficulty “sustaining” its debt. And it will spend an additional $63 billion. See the disconnect?

The same source lists the Debt/GDP ratio for the U.S. as 53% (More recent data from the Treasury shows this to be 66%), far lower than Japan’s. Yet, the debt hawks claim – without any supporting data — the U.S. federal debt must be reduced by raising taxes and/or reduced spending, either or both of which will injure the economy.

But wait, there’s more. According to mainstream economics, all that borrowing should have forced Japan’s interest rates up, which should be bad for economic growth. But Japan’s benchmark interest rate is 0%, as low as it has been in 5 years. The reason: Japan’s benchmark interest rate is not market-derived; it is set by the Japanese government, just as the U.S. Fed Funds rate is set by the Fed.

“DUBLIN — Ireland’s government said it must slash euro15 billion ($20.8 billion) from its annual budgets in a four-year plan designed to bring Europe’s highest deficit back within EU limits.”

The EU demands that its nations have a Deficit/GDP ratio below 3%. However, as Ireland reduces stimulus spending, GDP also will fall. So, Ireland must chase a moving target, in which reductions in the numerator cause reductions in the denominator. Visualize a dog chasing its tail, and you have the EU mainstream economics version of Ireland.

“ATHENS, Greece — Greece’s central bank governor says the government must not relent in its planned deficit-cutting efforts but warns against further tax increases, which would deepen the recession.”

Just so we understand, tax increases will “deepen the recession” (by removing money from the economy), but deficit cuts, which also will remove money from the economy, are O.K.???

And this is what the science of economics has become.

There are two and only two solutions for Greece and Ireland. Either,
1. Return to Monetary Sovereignty by re-adopting your sovereign currency
or
2. Have the EU create a true United States of Europe whereby the EU would supply euros to its member nations as needed.

There are no other solutions. Oh yes, and stop demanding that your member nations commit economic suicide.

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

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind 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.”