–Why not increase federal deficit spending? Here’s why.

Mitchell’s laws: The more budgets are cut and taxes increased, the weaker an economy becomes. Until the 99% understand the need for deficits, the 1% will rule. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Today, Americans are suffering from unemployment, which means Americans are suffering from lack of income — particularly the so-called “99%” who comprise the middle and lower income groups. And today, the political campaigns are in full swing, with politicians telling you what they think you want to hear.

And today, they will tell you what they plan to do about our economy, and particularly about the federal deficit. So today, might be a good time to remind you, once again, why the federal government doesn’t increase deficit spending.

After all, if the federal government would spend more on goods and services, while cutting taxes, this would create more jobs, reduce unemployment and put more dollars into the pockets of Americans. So, why not increase federal deficit spending?

As you know, the federal government (unlike state and local governments, businesses, the euro nations and us private people) is Monetarily Sovereign. It has the unlimited ability to create dollars.

If the government owed you a trillion dollars, it simply would instruct your bank to increase the number in your checking account by 1,000,000,000,000. Done! “Paying for” its debts is no problem for the federal government. It never can run short of dollars.

The federal government doesn’t even need taxes. If federal taxes were $0, the federal government still could create as many dollars as it wished, and still could pay you that trillion dollars. So, why not increase federal deficit spending?

According to Table S–6. Proposed Budget in Population- and Inflation-Adjusted Dollars (Government Printing Office), the total proposed 2012 budget is $3.7 trillion, of which $1.5 trillion is for Medicare, Medicaid and Social Security, which goes into the pockets of us Americans. That’s a good thing, right?

So why not increase deficit spending on things like Medicare, Medicaid and Social Security?

Another $884 billion goes for “Security,” much of which pays soldiers’ salaries and the domestic companies that make the guns, planes and ships for the military. We all hate war, but financially, paying soldiers as well as domestic companies that hire people, would seem to be a good thing for our economy. Right?

If the federal government can create all the dollars it wants, and most of those dollars go into the pockets of Americans, why not increase federal deficit spending?

Now, some people will tell you that although millions of Americans and American businesses are struggling financially, and although the federal government can create unlimited dollars, and although these dollars would go into the pockets of Americans, while supporting vital services like health care, education, infrastructure and defense, the deficit should be reduced.

Why? These people will tell you deficit spending causes inflation.

They will tell you that inflation is our biggest worry and we should remember the Weimar Republic and Zimbabwe hyperinflations. Never mind that the Weimar hyperinflation was caused by the onerous post-WWI conditions put on Germany by the Allies. And never mind that the Zimbabwe hyperinflation was caused by Robert Mugabe’s stealing of land from farmers and giving it to people who didn’t know how to farm.

And never mind that despite wars, recessions, depressions and federal deficit spending, we never have experienced hyperinflation. Those people fear a hypothetical, never-experienced problem more than the real problem of a recession from which we have not yet recovered.

So for those people, I again offer the following graph:

As you can see, there has been zero relationship between federal deficit spending and inflation. Zero.

So if the federal government is capable of unlimited deficit spending, and if deficit spending helps cure unemployment and puts dollars into American pockets, and does not cause inflation, why do we not increase federal deficit spending?

The answer: Ignorance and intent.

Some of our leaders — politicians, economists and the media — are ignorant of the facts. And some of our leaders, knowing the federal spending which reduces unemployment and puts dollars in the pockets of the 99%, also reduces the income gap. They don’t want that. They are the servants of the 1%, bought and paid for.

The next time you read about or hear someone saying the federal deficit is too high, “unsustainable” or should be reduced, know this: That person either is ignorant of the facts or intentionally wants to increase the gap between rich and non-rich. There are no other alternatives.

Now, the challenge is to find a politician who will tell the truth about the economy. Good luck with that.

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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–Baucus, Obama and Rivlin, oh my! Austerity is on the loose. Guard your wallet.

The euro nations, being monetarily non-sovereign, are unable to create their own currency, the euro. So to pay their bills, they are forced to limit their spending to what they can tax and borrow. Economists have given this problem the benign name, “austerity,” and it has led to the economic disasters of Greece, Italy, Ireland, France, Spain and Portugal, with others soon to follow.

Austerity (deficit reduction) always means the slow death of an economy, and it particularly impacts the lower income groups. The wealthy never feel austerity. They still ride their yachts and limousines, and eat at the best restaurants. In fact, austerity increases the income gap between the upper 1% and the other 99%.

By contrast, the U.S. is Monetarily Sovereign, so can create its sovereign currency the dollar — in unlimited amounts. Its spending is not limited to taxes and borrowing, both of which could be eliminated with no effect on the federal government’s ability to pay its bills.

Unfortunately, the Max Baucuses of the world, care nothing about the euro experience (as well as a similar experience which caused the Great Depression.) They treat the U.S. as though it were a euro nation — monetarily non-sovereign — so with deficit reduction, the result will be the euro result. Economic devastation for America.

New York Times
June 11, 2012, 12:44 PM
Baucus Says Tax Overhaul That Raises Revenues Is Moving Forward
By Jonathan Weisman

Senator Max Baucus of Montana, the chairman of the Senate Finance Committee, said on Monday that an overhaul of the tax code was moving forward, but that any plan must raise more revenue, help reduce the deficit and address the nation’s growing disparity between rich and poor.

Translation: Actually, I don’t give a damn about the poor, but I use that “disparity” phrase to fool them into thinking its necessary to raise their taxes and cut their social benefits.

“Everyone needs to contribute,” Mr. Baucus said during a speech at the Bipartisan Policy Center, a centrist research organization in Washington.

Translation: Never mind that the lower 99% will contribute comparatively more, because they have less to spare.

Mr. Baucus said he had been moving forward on a tax code overhaul that would be a pivotal part of any long-term deficit reduction deal. Mr. Baucus participated on Wednesday in a secret dinner on the end-of-year “fiscal cliff” that included Democratic Senate leaders like Charles E. Schumer of New York and Richard J. Durbin of Illinois.

Translation: The “fiscal cliff” is a series of tax hikes and spending cuts (aka “austerity) set begin on Jan. 1. Economists know this could cause the U.S. economy fall back into another recession. Therefore, to prevent the fiscal cliff, I am proposing a series of tax hikes and spending cuts. I know this makes no sense, but the unwashed masses won’t understand that.

That plan is likely to stay under wraps until after the November election, unless broad support for it coalesces earlier. Mr. Baucus does not want partisan lines drawn around the plan during the campaign season.

Translation: In the unlikely event the public catches on to the idiocy of my plan, I don’t want Republicans to get kicked out of office. So we’ll spring it on the people after elections.

In January, the Bush-era cuts to income, capital gains and dividends tax rates are set to expire, and the first wave of automatic defense cuts are scheduled to go into force. A new article in The New Yorker asserts that President Obama, regardless of the election results, is willing to allow all the tax cuts to expire on Jan. 1 if Republicans refuse to compromise on his demands to allow tax cuts for the rich to lapse.

Translation: The President is willing to let the entire country go down the tubes. (“I’m going to hold my breath until I get my way.”)

Mr. Baucus said deficit reduction and tax reform could not be separated. “We simply don’t raise enough revenue.” Since the 1986 tax code overhaul, the American economy has grown by 88 percent, he said, “but the rising tide has not lifted all boats.”

Translation: Sure, cutting taxes has helped economic growth, and the stimulus spending has helped moderate the recession, but the rich still could do better, and I’m going to help them.

He also hinted at major changes to the corporate income tax code that would lower rates and curtail, if not end, the United States’ worldwide corporate income taxation, but would tighten rules that allow American companies to shift income to offshore tax havens. Instead of automatically extending dozens of temporary business tax breaks, he said, Congress this year must pick which breaks should live and which should lapse.

Translation: For corporations, the subject is: Which taxes to cut. For the people, the subject is: Which taxes to raise.

“Tax reform is a once-in-a-generation opportunity,” he said. “We can cement America’s preeminence.”

Translation: We can cement the 99%’s feet and drop them overboard.

“The tax piece of the debt puzzle is going to be given equal prowess with entitlement reform,” said Former Senator Pete V. Domenici, Republican of New Mexico, who, along with the Democratic economist Alice Rivlin, has his own broad deficit reduction plan. “You can’t have one without the other.”

Translation: “Entitlement reform” is our way of saying, “Cut Social Security; cut Medicare; cut Medicaid; cut aid to education; cut all the benefits to the 99%, but do not raise taxes on corporations or on the 1%. Alice Rivlin is part of the old-line, Brookings Institution, that to this day, has not understood what happened on August 15, 1971, when the U.S. became Monetarily Sovereign. She may be a dope, but she’s our perfect tool for fooling the 99%.

[Aside: Cutting taxes on corporations is a great idea, but the rest is bad economics.]

Wanted: One person in Congress who has the intelligence and the integrity to shout from the rooftops: “Cutting the deficit is the dumbest thing any Monetarily Sovereign nation can do. The more budgets are cut and taxes increased, the weaker an economy becomes.”

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

#MONETARY SOVEREIGNTY

–Read today’s truly hilarious news article about Spain

I hope you enjoy comedy as much as I do. Here are a few excerpts from a truly hilarious article about Spain.

Spain Bank Rescue Glee Morphs Into Markets Rout
By Associated Press | June 11, 2012 |

MADRID (AP) — Euphoria over a lifeline of up to €100 billion ($125 billion) to rescue Spain‘s hurting banks morphed into a financial markets rout in a matter of hours Monday, as investors digested the still-undefined plan and became concerned the country may be unable to repay the new loans.

What!! You mean lending a lot more money to someone who has no source of income, and cannot possibly service its current debts, will not solve that person’s debt problem??! Who’da thunk it?

The rate on Spanish 10-year bonds — a measure of market trust in a country’s ability to repay debt — rose to an alarmingly high yield of 6.47 percent.

You think that’s “alarmingly high”? Would you really want to lend money to someone who has no hope of ever servicing their debt — and now is burdened with even more debt? I think 6.47% is way too low.

Overshadowing Spain’s acceptance over the weekend of a bailout for banks burdened by toxic property assets and loans are Greek elections next weekend and concerns that the anti-bailout left-wing party Syriza could become the largest party in parliament, putting the country’s membership in the zone at risk.

If Greece left the euro behind, within two years, they would be one of the wealthier nations in Europe. Why? They could pay their debts, with no difficulty, and a probably lower-value currency, would allow them to become big exporters. Monetary Sovereignty would mean more money; more businesses and more jobs.

Investors also zeroed in on Italy, sending its bond yields sharply higher amid worries it could be next in line for a bailout.

Or, better yet, Italy should get in line to leave the euro. Face it, the euro is the worst idea since raising duties during the Great Depression.

“Plenty of risk still remains in place, with question marks over the ability of Spain to repay the debt, especially, if the country fails to get back on the growth path, the outcome of the upcoming Greek elections and the perception of situation in Italy,” Anita Paluch of Gekko Global Markets wrote in a note to clients.

Anita, they can’t pay their debts. Their people are broke. They have no jobs. The nation is broke too, also with no source of income. The country just took on huge added debt. And you wonder whether the country will “fail to get back on the growth path”?? What world do you live in?

Spain’s bond yield is worrisome because it is perilously close the 7 percent rate that is considered unsustainable, and the level that pushed Greece, Ireland and Portugal to ask for bailouts of their government finances.

Forget the 7% rate. A 1% rate would be unsustainable for a nation that has no net income and no source of money. How do you people come up with these magic numbers? From a “Magic 8 Ball”?

“When people lend money, they never do it for free. They want to know what is done with the money,” said Joaquin Almunia, the European Competition Commissioner.

“I am not talking about just the obligation to pay back the money, but also some other kind of terms,” he told Cadena Ser radio, adding that these remain to be determined.

Translation: Not only are we lending you money you cannot repay, but we are assigning conditions to the loan — conditions you cannot meet. (Could it get any funnier? Hello Jay Leno, are you listening?)

The loan will be supervised by the European Commission, the European Central Bank and the IMF, Almunia said. This troika will have people on the ground overseeing the restructuring of the Spanish financial sector. Representatives of the same three groups regularly visit Greece, Ireland and Portugal to make sure the governments in those nations are complying with bailout terms.

Oh, thank goodness. I was worried you might send idiots. But, I feel reassured, now that Greece, Ireland and Portugal have recovered due to your excellent supervision.

Altafaj noted that the European Commission last month recommended Spain undertake further reforms such as speeding up the phasing of a higher retirement age — it is to go from 65 to 67 — and raise VAT sales tax.

Great idea. The people are broke and jobless, so your solution is to reduce their pensions and increase their taxes.

Harold Heckle and Alan Clendenning in Madrid contributed to this report.

Thanks guys, for providing a few laughs in this otherwise gloomy day. Here’s your reward:

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

#MONETARY SOVEREIGNTY

–Which is more important to our lives: Meteorology or economics?

You can find many parallels between meteorology and economics. The most striking: They both involve huge masses of data and they both are extremely chaotic – small changes can cause large effects – which makes prediction extremely difficult.

Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) are quite good at describing the economy as it is, but rather poor at describing the economy as it will be. Yes, I can tell you, with some assurance, that running a federal surplus will lead to a recession or a depression, (See: Items 3 and 4), but I can’t tell you exactly when this will happen, nor exactly what will trigger it.

It took a 10-year federal surplus to cause the Great Depression, but a mere 3 years of surplus caused the recession of 2001, and most recessions have not been associated with federal surpluses. They have been associated with reductions in deficit growth.

In each case, there needed to be a trigger(s), something in addition to surpluses or reductions in deficit growth, to push the economy past the tipping point. (“What triggers recessions and depressions?”)

And therein lies the rub, because although federal surpluses and deficit growth reductions are somewhat predictable, the triggers are much less so. And that is why I beg the National Center for Atmospheric Research, or any other federal agency, to help us:

New Wyoming supercomputer expected to boost atmospheric science
By Scott Gold, Los Angeles Times, 6/10/12

The National Center for Atmospheric Research’s machine, called “Yellowstone,” is one of the fastest computers ever built, its sheer speed designed to burst through the limits of chaos theory.

CHEYENNE, Wyo. — This month, on a barren Wyoming landscape dotted with gopher holes and hay bales, the federal government is assembling a supercomputer 10 years in the making, one of the fastest computers ever built and the largest ever devoted to the study of atmospheric science.

The National Center for Atmospheric Research’s supercomputer will have 100 racks of servers and 72,000 core processors, so many parts that they must be delivered in the back of a 747. It will be capable of performing 1.5 quadrillion calculations — a quadrillion is a 1 followed by 15 zeros — every second.

The study of climate and weather patterns has always been hamstrung by volatility — by elements of chaos in the seas and the air. That challenge is most famously summed up by the “butterfly effect,” the idea that the flapping of a butterfly’s wings on the coast of Africa can determine whether a hurricane will strike New Orleans.

Rather than warning of a tornado risk in the central U.S. between noon and 9 p.m., scientists might one day warn of a tornado risk in Woodson County, Kan., between 1 and 3 p.m. Rather than warning of a hurricane striking the coast of Texas, they hope to be able to warn of a hurricane striking the town of Freeport, with a top wind speed of 90 mph and a tidal surge of 4 1/2 feet.

That regional accuracy is particularly critical in the study of climate change. “The disaster of climate change happens on a regional scale,” Loft said. “Everything is connected.”

For example, once scientists use Yellowstone to help predict the melting of ice at the North Pole, which means significant change in nearby waters, they can better predict the patterns of storms that form in the Gulf of Alaska. Then Yellowstone can help predict how those storms will deposit snow atop the Sierra Nevada, down to precise changes in elevation on individual faces of mountains.

That snow will melt, and the water will run downhill — which means Yellowstone can help predict how much water California will have to drink, even the most efficient locations to build the state’s reservoirs.

Yes, predicting the weather is important, because it will allow us to react sooner and better. But, I argue that predicting the economy is even more important. As Mark Twain famously said, “Everyone talks about the weather, but no one does anything about it.” While we must react to weather, we have the every day power to bend the economy to our will. We can do something about our economy.

We’re a long way from preventing or turning off a hurricane, but we already know how to prevent and turn off a recession — if given the correlated data.

The computer will be housed in a futuristic, $70-million compound west of Cheyenne. The National Science Foundation, which funds NCAR, is paying $50 million of the tab.

An investment of only $70 million dollars — that’s less than a rounding error in the federal budget — to get a machine that will help us predict and change the world’s economies. Is it worth just $70 million to be able to predict and prevent the every-five-year economic crises that beset us? How many billions has the recession cost us — a recession that could have been prevented — if the data were assembled and correlated? How many ruined lives? Is a paltry $75 million a worthwhile investment to help prevent all that misery?

Yellowstone will replace NCAR’s Bluefire system, a supercomputer in its own right, though this one will have roughly 30 times the throughput of the old system.

Hey, if you don’t want it, we’ll take it.

Yellowstone will hold 600 sets of atmospheric data in its vast memory bank — temperatures, humidity, wind motion, rainfall. Information gleaned from the world’s data-collection systems — buoys in the ocean, wind monitors fastened to the top of telephone poles — will be added to the archive.

How about an economics computer that will correlate such world data as debts, imports/exports, salaries, savings, agriculture, manufacturing, exchange rates, population shifts, inflation, wars, technology changes and yes, world weather. Today’s economists are able to focus on only a handful of data at any one time. In essence, we try to predict the weather in Florida based on last year’s rain in France.

(The machine will be open) to researchers from across the nation, probably in August. Scientists will make proposals to book an “allocation” on the computer, similar to using minutes on a cellphone plan. Most will access the computer remotely.

Some hope to predict migration patterns of animals, others the success and failure of certain farm crops, others specific hillsides that would be the most efficient spots for wind turbines.

Think of how valuable this would be for economics.

NCAR scientist Michael Wiltberger studies solar flares, superheated gas that emanates from the sun, with the potential to be enormously disruptive on Earth.

“Right now, we don’t know why a particular configuration of the magnetic field of the sun is going to erupt,” Wiltberger said. “We need to know — and now we can run millions times more models to provide meaningful predictions.”

Armed with better predictions of what will happen when solar flares reach Earth — and where, precisely, they will occur — scientists could warn energy companies to protect against power surges. Global positioning systems could be disrupted, so farmers that use GPS to map crops could be warned to suspend planting operations.

Hey, some of this is economics stuff. And, is it more important to predict solar flares or the next depression?

NCAR senior scientist Morris Weisman specializes in a tricky corner of science: severe, high-impact weather events, which are by definition so rare that they are difficult to predict. “Scientifically non-satisfying” is how Weisman puts it — but with such a leap in computer modeling, he said, scientists could theoretically predict an extreme weather event “within an hour, within a few kilometers.”

Or the date and cause of a war. Or the economic implications of planting more wheat and less corn. Or the effect of opening the border between the U.S. and Mexico. Or the world-wide effect of building one water desalinization plant.

Loft marveled that such a dizzying array of experiments will be done using time-tested and sometimes rudimentary math — 19th century laws of thermal dynamics, rules of mechanics devised by Isaac Newton after an apple supposedly bonked him on the head and got him thinking about gravity. Yellowstone will use the same, just a whole lot of it at once.

We have the math. All we need is the machine.

The scientists behind Yellowstone shrug at a bitter reality: cutting edge doesn’t last long in their world. The Wyoming facility was built with enough space to accommodate the next generation of computer, which is already being contemplated, before this one is put together. “We won’t be cool for long,” Loft said. “This business is ephemeral. There’s not much room for nostalgia.”

Here is the The National Center for Atmospheric Research, having received a $70 million computer from the government, already now is planning for its replacement. Are we to believe that meteorological research is important, but economic research is not? Are we to believe there would be no value in being able to predict the next recession or depression, so we could forestall it?

I can make the case that, considering its affect on human lives, economics is the most important science of all. So where are the super computers?

We want that next machine. We need that next machine. The American people need us to have that next machine. My question is: Who in the world of economics, is asking for that next machine?

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

#MONETARY SOVEREIGNTY

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