Tag: taxes

–The amazing ignorance of Sheila C. Bair, Chairman of the FDIC

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

In the OMG! category, here are excerpts from an article in the Washington Post. It was written by Sheila C. Bair, the Chairman of the FDIC.

Will the next fiscal crisis start in Washington?

“Even as work continues to repair our financial infrastructure and get the economy moving again, we need urgent action to forestall the next financial crisis. I fear that one will start in Washington. Total federal debt has doubled in the past seven years, to almost $14 trillion. That’s more than $100,000 for every American household.”

This is the old debt-hawk, debt-clock mantra in which federal debt falsely is said to be owed by the people living in America. It’s as though you and I suddenly have become the government. The mechanism by which we people, who never borrowed the money, now owe the federal debt, never is explained.

“This explosive growth in federal borrowing is a result of not just the financial crisis but also government unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit.”

Total ignorance of Monetary Sovereignty is demonstrated here.

“Retiring baby boomers, who will live longer on average than any previous generation, will have a major impact on government spending. This year, the combined expenditures on Social Security, Medicare and Medicaid are projected to account for 45 percent of primary federal spending, up from 27 percent in 1975. The Congressional Budget Office projects that annual entitlement spending could triple in real terms by 2035, to $4.5 trillion in today’s dollars. Defense spending is similarly unsustainable . . . “

The typical “debt is unsustainable” nonsense, with as always, no factual support for why federal spending is unsustainable.

“Unless something is done, federal debt held by the public could rise from a level equal to 62 percent of gross domestic product this year to 185 percent in 2035. Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations.”

Er, ah, excuse me, Madam Chairman, but not only is the debt/GDP ratio completely meaningless, but Japan’s debt/GDP ratio is over 200% and I haven’t noticed the crisis you describe. Again, no substantiation is given – just wild-ass predictions having no basis in reality.

“. . . while we enjoy a uniquely favored status today – investors still view U.S. Treasury securities as a haven during crises – events in Greece and Ireland should serve as a warning.”

Er, ah, excuse me again, Madam Chairman, but Greece and Ireland are monetarily non-sovereign, similar to Illinois, Chicago, you and me. Comparing the U.S. to monetarily non-sovereign nations is ignorant at best and deceiving at worst.

“Recent proposals by the co-chairs of the National Commission on Fiscal Responsibility and Reform and by the Bipartisan Policy Center represent credible first steps toward recognizing and addressing the nation’s fiscal problem. Both propose to reduce and cap discretionary spending, enact comprehensive tax reform, reduce mandatory spending on health care and other programs, and ensure the long-term solvency of Social Security.

“Fixing these problems will require a bipartisan national commitment to a comprehensive package of spending cuts and tax increases over many years. Most of the needed changes will be unpopular, and they are likely to affect every interest group in some way. We will want to phase in these changes as the economy continues to recover from the effects of the financial crisis.”

In short, she wants to enact a package similar to Ireland’s, which will impoverish America for decades to come.

That even the Chairman of the FDIC writes this tripe is ample evidence of the urgent need to continue contacting our Congressional representatives and the media and the mainstream economists, again and again, to educate them regarding Monetary Sovereignty. The truth will set us free.

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

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

–What will the Fed’s $600 billion Treasury purchase accomplish?

The debt hawks are to economics as the creationists are to biology. They, who do not understand monetary sovereignty, do not understand economics.
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Here’s how it works; you be the judge.

The first question is, if the Fed is buying, who is selling? Answer: The banks and the public. If the banks exchange their T-bonds for cash, will that stimulate the economy? Will that make banks more likely to lend? Are banks short of lending cash? The answers are, “No, no and no.”

Banks are not lending primarily because they can lend to the government, risk free, and make an easy 2% on their money. They are not short of lending funds. They don’t want the hassle of credit checking, defaults, collections, etc. Just borrow from the government at 0% and lend back at 2%. What could be easier?

The other reason banks haven’t lent is because business isn’t borrowing. Congress has made sure business has no idea what will happen, tomorrow. Taxes? Who knows? Interest rates? Unsure. A recovery? When? Expand my operations? Are you kidding? So with lenders and borrowers both unmotivated, lending is unlikely.

Well, what about the public? Do Fed bond purchases from the public stimulate the economy? When the Fed trades cash for T-bonds, this is tantamount to advancing the maturity date on those T-bonds. So what will the holder of T-bonds do when the government gives him cash for his bonds? He likes T-bonds, so if he can get a good price, he probably will buy more bonds – right back where he started.

But let’s say some people decide to invest those dollars in something other than T-bonds. Is that stimulative? Yes, but there is another problem. When the Fed buys bonds, the future interest on those bonds is not paid into the economy. The Fed’s purchase reduces future government interest payments, and that is anti-stimulative.

So my take on the $600 billion purchase is that it might have a very small and very temporary stimulative effect. Far better, and far more stimulative would be if the federal government cut taxes by $600 billion. But since our politicians don’t understand monetary sovereignty, that is unlikely to happen.

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

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

–The Fed’s $500 billion bond purchase

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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Rumor has it the Fed soon will announce approximately $500 billion in Treasury bond purchases, with possibly more purchases in the future. The effect of the Fed buying government bonds will be to add dollars to the economy.

This is in recognition of two realities:

1. The economy has been starved for dollars by the economically suicidal, debt-hawk mantra of “lower federal deficits and less federal debt.” Bernanke and the Fed now will officially have acknowledged the economy needs more dollars and the federal government has to supply them.

2. Congress and the President either are ignorant of this economic fact or, more likely, are too afraid of the debt hawks to add dollars to the economy via deficit spending, and instead have passed that hot potato to the Fed.

The question now is whether adding $500 billion is sufficient to pull us out of this economic funk. I suspect it is not, and that something north of $1-2 trillion in actual spending will be needed.

Rather than relying on the indirect effect of bond purchases by the Fed, and hoping that somehow the dollars will find their way into the hands of business and consumers, Congress and the President should use a direct approach. They should reduce all tax rates and specifically eliminate FICA. That would provide both an immediate and long-lasting economic stimulus, resulting in stronger business and more jobs.

Yes, that would add to the dreaded and much maligned federal deficit and the debt, which is exactly what a growing economy needs. It also might bring the debt hawks to their senses, and finally we could stop, for instance, cutting Medicare payments to doctors and reducing Social Security benefits.

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

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