–How to bail a boat, European style.

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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Visualize, you walk into a bank looking for a loan. You tell the loan officer your income is not large enough to cover your current expenses. Moreover, your current debts are so high, there is no reasonable possibility you ever will be able to service them, much less service any new debts.

What will the bank loan officer do?

If this occurred before 2008, and the loan you sought was a home mortgage, the bank would have given you the loan, under the belief that the collateral would keep increasing in value, and if you didn’t pay, the bank always could sell your house and make a profit.

That was then. This is now. Today, loan officers are a bit more careful (unless they happen to work for one of the “too-big-to-fail” banks in which there is no risk. If things go well, they make a fortune, and if things go poorly, Timothy Geithner will bail them out.)

Anyway, all of the above is merely a confirmation of the general rule: If someone can’t service his current debts, don’t put him even deeper in debt — which leads me to the following headline:

Spain to accept Europe bailout offer of up to $125 billion to rescue ailing economy

“Bailout” in Eurospeak means another loan. You see, Spain is hopelessly in debt, because although their debts are not especially high, they are monetarily non-sovereign. They can’t create the euros to pay even modest debts.

Austerity is collapsing their economy. Each day, their ability to service their debt declines. That’s why they need euros. So rather than give Spain euros, Europe will lend them the money, putting them deeper in debt.

Here are a few excerpts from the article:

. . . the eurogroup statement said that it expected Spain’s banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labor market and manage its deficit.

Translation: “Reform its labor market” means cut salaries and employment. “Manage its deficit” means cut stimulative spending. No explanation on how this will help Spain pay its debts.

U.S Treasury secretary Timothy Geithner welcomed Spain’s decision and the offer of European support, describing them as “important for the health of Spain’s economy and as concrete steps on the on the path to financial union, which is vital to the resilience of the euro area.”

Translation: Putting Spain deeper in debt, while cutting salaries, increasing unemployment and reduced stimulative spending, will help the euro. Trust me. Haven’t I done a great job for the U.S. economy?

French Finance Minister Pierre Moscovici said, “The accord announced tonight speaks to a reinforced solidary among the countries of the eurozone and to their resolute desire to ensure its stability,” he said in a statement.

We political leaders don’t give a fig about our starving people. Hey, we have jobs. All we care about is “stability,” whatever than means.

Analyst Rafael Pampillon if IE Business School in Madrid said, “This uncertainty, and hence the panic, will slowly dissipate from the markets. He added that with polls forecasting a pro-Euro victory in Greek elections, markets would be further relieved because the austerity conditions imposed on Greece would most likely be fulfilled.

Translation: I agree with Moscovici. Austerity is good. Who cares about the starving Greeks? If they’re stupid enough to vote for austerity, let ‘em eat flaming cheese.

Anyway, I have money.

Spain’s in its second recession in three years, with unemployment at nearly 25 percent and little hope for improvement this year. Prime Minister Mariano Rajoy’s government has imposed a wave of austerity measures since he took office in December that have raised taxes, made it cheaper to hire and fire workers and cut government funding for education and health care.

Translation: I don’t get it. When I arrived, there was a fire, so I poured on some gasoline to put it out. but the more I poured, the worse the fire got. It’s truly a mystery.

Spain is the fourth euro nation to receive “bailouts,” after Greece, Italy and Portugal, and as anyone can see, these bailouts have had no positive effect. What a surprise.

Note to Europe: When you bail a boat, the water is supposed to go to the outside of the boat, not in. Just a thought.

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

–AARP’s big lie and why you shouldn’t buy their insurance.

You’re over 50, so you joined AARP, partly to get discounts on hotel rooms, rental cars and other good stuff, and partly because you believe AARP represents your interests with Congress and the President. Well the discounts are real, but AARP does not, repeat NOT, represent your interests.

Quite the contrary, it represents its own interests in selling you insurance, and it represents the interests of those who wish to take dollars out of your pocket. Here is what AARP said in a recent post titled, The Future of Social Security: 12 Proposals You Should Know About

AARP: With more people living longer, Social Security faces increasing financial challenges. Estimates indicate the program will be able to pay full benefits for the next 20 years, but only 75 percent after that.

That comment is based on the gigantic lie that FICA pays for Social Security. When the U.S. government was monetarily non-sovereign, that was somewhat true. But on August 15, 1971, the U.S. became Monetarily Sovereign. No longer did taxes – any taxes – pay for government spending.

If FICA fell to $0 and Social Security benefits tripled, the federal government still could pay these benefits, not just for 20 years, but forever. That’s right. FICA could be eliminated, and that would not affect the federal governments ability to pay full Social Security benefits, by even one cent.

AARP never tells you that. No, AARP continues promoting the myth that Social Security will run short of dollars. Total nonsense. The federal government, being Monetarily Sovereign, creates dollars at will, merely by increasing the numbers in bank accounts.

So the question is: Are AARP leaders simply ignorant, or are they part of the big money effort to increase the income gap between the upper 1% and the lower 99%? You decide. Ignorance or conspiracy?

Anyway, while you’re deciding, here are the 12 proposed changes in Social Security listed by AARP, all of which will reduce benefits and/or increase taxes. In fairness, AARP does provide pros and cons for each proposal. But all the pros are the same. They save money for the government and take money from you and me. So, I’ll just mention the cons:

Proposed Changes in Social Security

1. Raise the Full Retirement Age ( Raising the full retirement age for everyone simply because well-off Americans are living longer is a stealth benefit cut that is unnecessary and unjust.)

2. Begin Longevity Indexing (Low-earning workers and other disadvantaged groups have seen little or no gains in longevity. Cutting benefits for everyone just because well-off Americans are living longer would be profoundly unjust. Moreover, this change would violate the purpose of Social Security, which is to ensure basic economic security.)

3. Recalculate the COLA (inflation) (The current COLA doesn’t keep up with the inflation that seniors face because they spend more than other Americans for out-of-pocket health care costs and those costs rise faster than average inflation. The chained consumer price index would make matters worse by reducing the COLA.)

4. Increase the Payroll Tax Cap ( This bad idea would cause a hefty tax increase for middle-income taxpayers while not affecting the rich. It would especially hurt the self-employed and certain smaller business owners.)

5. Eliminate the Payroll Tax Cap (If millionaires pay Social Security taxes on all of their salary income, their maximum annual benefit payment could reach over $150,000 a year. Social Security was not intended to provide such large benefits.)

6. Reduce Benefits for Higher Earners (These proposals would actually cut benefits for middle-class workers making as little as $35,000 a year. They are not “high earners.” Benefits are already modest.)

7. Increase the Payroll Tax Rate (Economists have known for decades that if the cost of employees gets too great, employers will start to replace them with machines)

8. Tax All Salary Reduction Plans (This would increase the cost of health care and other employee benefits because the tax savings help to offset the employer’s cost of operating the plans.)

9. Cover All Newly Hired State and Local Government Workers (Making newly hired workers join Social Security would increase revenue now, but eventually the program would have to pay these workers benefits. That would make Social Security’s financial problems even worse.)

10. Benefit Improvements (Although Social Security benefits for some groups are too low, they should only be improved as part of an overall reform. Otherwise, the added costs would only exhaust the trust fund faster.)

11. Increase Number of Years Used to Calculate Initial Benefits (This proposal would reduce benefits the most for people who need them most: women and lower-income, less-educated and minority retirees. It would reduce benefits not only for retired workers, but also for their dependents and survivors.)

12. Begin Means-Testing Social Security Benefits (Means testing would change Social Security from an earned right to welfare. It would penalize you if you saved or earned a pension because that income would reduce your Social Security. And it would cost more to administer. The government would have to routinely check your income and assets in order to adjust your benefit. )

Even some of the cons listed by AARP are based on the big lie, that FICA pays for Social Security benefits, and the federal government cannot afford to pay. The entire article is entwined with the same false idea.

Bottom line: Social Security benefits are too low and FICA should be eliminated. Period.

Meanwhile AARP continues to spread the big lie rather than spreading the truth. They tell you the that Social Security (and Medicare, for that matter) will run out of money unless taxes are increased and/or benefits decreased. That Simply Is Not So. It’s the biggest lie in all of economics.

Of course, you might try writing to AARP, and explaining the facts. But if that doesn’t work, go ahead and join AARP for the discounts. But don’t be fooled. They are no friend of yours.

And whatever you do, don’t buy their insurance. Selling you insurance is what they they were formed to do and what they really care about. You don’t want to reward them for helping the government take money out of your pocket.

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

#MONETARY SOVEREIGNTY

–Who needs federal employees? Not Congress. Not the President. Not us.

The myth: We really don’t need government workers. They are lazy bureaucrats, who do nothing but shuffle paper.

This myth, often repeated in various forms, by those who know nothing of federal services, together with the John Boehner boldfaced lie that the federal government is “broke,” has led to:

Washington Post
More federal pay freeze plans pushed in House
By Eric Yoder

Federal pay rates would be frozen for the third straight year in 2013 under several plans that advanced in the House on Wednesday.

A spending bill covering general government matters for the upcoming fiscal year approved by a House Appropriations subcommittee contains no additional money to pay for a raise, effectively rejecting President Obama’s request for a 0.5 percent increase in January.

That spending bill, which also provides operating funds for financial regulatory agencies and central management agencies, typically is the vehicle for setting the annual federal pay raise, when one is provided.

Translation: Who needs financial regulatory agencies? They didn’t have enough trained personnel to regulate the big, dishonest banks, which led to the Great Recession, so maybe by not giving raises, we’ll attract more and better people who’ll do a better job. Right?

Also on Wednesday, the House started voting on a spending bill for the Department of Homeland Security that provides no funds for a raise there.

Translation: Who needs homeland security? We haven’t had many terrorist acts in America. So obviously these people are unnecessary. Right?

And then there’s this:

Washington Post

Weather Service says furloughs possible for up to 5,000 to close budget gap
By Lisa Rein and Jason Samenow

The National Weather Service notified lawmakers on Thursday that it plans to furlough up to 5,000 employees for a total of 13 days between July and September if Congress and the agency cannot find $36 million to cover its budget deficit.

Weather Service officials acknowledged in their memo to legislators, as well as the union, that requiring employees to take unpaid leave would seriously disrupt critical weather operations at the peak of hurricane season.

Translation: Who needs weather prediction? Hurricanes and tornadoes aren’t all that serious. Right?

And then there’s this:

House backs federal job cuts, extended pay freeze

(A) budget resolution proposed by Rep. Paul Ryan (R-Wis.) calls for continuing the freeze on federal salary rates through 2015, cutting federal employment by 10 percent by hiring only one replacement for every three employees who leave, and requiring employees to pay as much into the retirement fund as the government pays. That provision would require an increase on the employee side of as much as 6 percent of salary.

Translation: Who needs federal employees? They aren’t very helpful, are they?

Bottom line: There are a thousand stories like this, and they all are based on two facts:

1. The federal government falsely claims the federal deficit is too high, when in reality, it is too low.

2. This false claim allows the 1%, as represented by the federal government, to stick it to the 99%, as represented by federal employees, thus increasing unemployment and the gap between rich and poor.

And the American public, which is punished when federal services aren’t provided (especially the 99%), falls for this garbage.

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

#MONETARY SOVEREIGNTY

–Congress and the President fiddle while America’s students burn

It’s difficult to imagine many factors more vital to the growth of the American economy than education. Yet our President and Congress seem incapable of understanding this need.

The federal government, which is Monetarily Sovereign, and so has the unlimited ability to pay its bills, pays for only 10% percent of total elementary and secondary education.

Source: New America Foundation

Grades 1 through 12 are financed at the 90% level by local governments. The reality of monetarily non-sovereign (local) governments is they are limited in their spending ability. So, in most communities around the nation, teachers are under-paid, under-supervised and often under-trained, classrooms are under-serviced, and physical plants are under-constructed and under-maintained.

Considering the importance of education, why does our infinitely wealthy federal government contribute only 10%, while cash-strapped local governments are forced to pay 90%? As with so many questions in economics, our political leaders and the public do not understand the differences between Monetary Sovereignty and monetary non-sovereignty.

Washington Post
Obama warns of congressional inaction on student loan bill
By Rosalind S. Helderman and Amy Gardner, Published: June 7

LAS VEGAS — With a July 1 rate increase on education loans approaching, President Obama told students here on Thursday that it is Congress’s job to move swiftly to prevent the rise, even as Republicans in Washington accused him of ignoring their most recent proposals and refusing to negotiate.

Speaking at the University of Nevada at Las Vegas, Obama delivered a new broadside against Congress for not passing key pieces of his job creation plan and warned of the consequences of congressional inaction on the student loan issue: an increase of $1,000 on the average federally subsidized Stafford loan for more than 7 million people. He urged students to call, e-mail and tweet lawmakers to force action.

“How many people can afford to pay an extra $1,000 when you’re a student, just because Congress can’t get its act together?” Obama said. “This is a no-brainer. . . . Get it done.”

Leaders in both parties insist that they want to find a way to prevent subsidized Stafford loan rates from jumping from 3.4 percent to 6.8 percent next month. But they’ve been unable to agree on how to pay for the $6 billion cost of extending the lowered rates for another year.

Congress and the President claim that the U.S. federal government needs a source of dollars in order to pay for federal spending, when exactly the opposite is true. Federal spending creates dollars

The fact that our schools are in such poor shape is a national disgrace.

The fact that college students must slide deeply into debt, just to obtain an education that not only benefits them, but benefits America — is a national disgrace.

And these student loans, unlike all other loans, cannot be discharged in bankruptcy (unless you are so impoverished you can’t even afford cable, Internet or a cell phone — even without paying your student loans — and your finances are unlikely to improve.) In short, you must take a vow of perpetual poverty — another national disgrace.

King5 News
Jake Whittenberg

“We are starting to see the first big wave (of students going bankrupt on other debt, so to focus on student loan debt),” says Christina Henry, a bankruptcy attorney at Seattle Debt Law.

Unlike most debt, student loans cannot be discharged through bankruptcy, so Henry is working with students to pay off other loans so they can focus on the student debt. “In my opinion, we are going to see a whole generation of people where standard of living is going to be diminished because they can’t find a job to keep up with payments,” she said. “Most people don’t understand the terms on these student loans are inflexible.”

Total student loan debt just reached $1 trillion this year in the U.S. That’s higher than total credit card debt. About two-thirds of college graduates have some student loans to pay off, and their average debt is about $25,000 to $28,700, according to estimates by education experts and organizations.

(One student said, “Interest accrues faster than I thought. It’s scary.)

(At today’s rates, even 3.4% is no bargain. But why does our federal government, with the unlimited ability to create dollars, need to ask students for any dollars? Completely senseless.)

The United States has fallen from first to 12th in the share of adults ages 25 to 34 with postsecondary degrees, according to a report from the College Board — yet another national disgrace.

To prepare America to compete in the 21st century — a century that will see increasing technological advancement — American young people must be educated. We cannot rely on impoverished school boards to carry the load. We cannot rely on impoverished students to carry the load. The federal government must carry the load.

Here is how:

1. Local governments now pay for grades 1-12. Instead, the federal government should pay for grades 1-16 and beyond. Every person in America, not only should have a free lower education, but a free higher education, unlimited by local budgets.

2. The federal government should pay students a salary for attending school. [See: Salary for attending school.] Even with a free education, many students leave school because they and their family need to work for a living. Going to school is a time-consuming job that benefits America. Students should be paid for doing this job.

While Congress and the President dither about whether to charge students 3.4% or 6.8% for college loans that should be unnecessary, America falls behind. Ignorance of Monetary Sovereignty will be the undoing of our once great nation.

One day, as our children look back and wonder how we allowed our country to fall so far, the answer will be the lack of a progressive educational policy, combined with economic ignorance.

It’s a national disgrace.

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

#MONETARY SOVEREIGNTY

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