–The solution for France and the other Monetarily Non-Sovereign Governements (MNSGs)

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

(Reuters- 10/13/10) – French unions voted on Wednesday to extend a rail strike and blockaded supplies from oil refineries and the country’s largest fuel port, but the government stood firm on its pension reform plans . . .I’m not denying there were a lot of people in the streets but at the same time what can we do? Not reform the pension system?” Labour Minister Eric Woerth told RTL radio.

France is in deep trouble. As a monetarily non-sovereign government (MNSG), it cannot afford to pay the generous pensions with which previous politicians bought votes. So look for one or both of two events: The unions will surrender, in which case more than a million people will not receive the pensions they had planned for — a national calamity. Or the nation will have to steal money from other sources – health care, roads, the military and all the other places the French government spends money. This later step would deprive hundreds of thousands of French citizens of their jobs — also a national calamity.

In either case, France is doomed, unless – unless the EU comes to its senses and realizes MNSGs cannot survive on taxes alone. Not being able to create unlimited money (as the U.S. and other monetarily sovereign nations can), the EU nations must have money coming in from outside, either through exports or support from the EU itself.

I predicted this problem back in June 5, 2005, in a speech to the University of Missouri, Kansas City, when I said, “. . .because of the Euro, no European nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.”

Why are MNSGs unable to survive on taxes alone? Primarily because of inflation, and secondarily because of imports. MNSGs pay bills with tax money, so with no imports or exports, the same money recirculates within the nation. But, each year, inflation makes that money worth less in buying power, so over time, the nation is impoverished. If the nation’s imports exceed its exports, money leaves the nation, which exacerbates the problem.

Germany, a MNSG survives because it has significant exports – a positive balance of trade – which overcomes the negative effect of inflation. But mathematically, all nations cannot have a positive balance of trade. And those MNSGs that do not, must suffer.

I should mention again that the U.S. does not need a positive balance of trade, as being monetarily sovereign, it can pay any debt of any size, any time. But the EU nations (except for the UK, which wisely held on to the pound sterling), all are in deep trouble, unless the EU itself changes the rules, and provides euros to its member nations, not by lending but by giving.

And that is what I think will happen.

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

No nation can tax itself into prosperity

–Did TARP (Troubled Asset Relief Program) work?

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

If you’ve joined the millions who believe TARP (Troubled Asset Relief Program) didn’t work, you’ll enjoy these excerpts from a NY Times article, titled, “Bailout Loss Estimated at $29 Billion,” by Louise Story, October 5, 2010. The article quotes from a Treasury Department report:

“The Treasury Department expects to lose $29 billion on the federal bailouts . . . the cost is far below the $350 billion the Congressional Budget Office once estimated. ‘Because of the success of the program, TARP will likely cost a fraction of this amount,’ the report said.”

This means the federal government actually pumped only $29 billion TARP money into the economy. This “too little-too late” approach explains much of the reason why the recovery has been so slow.

“Recently, the Congressional Budget Office put the cost at $66 billion. […] The Treasury arrived at its figure by adding in profits that it expects to receive on shares of A.I.G. stock.- – – a $22 billion profit. Without those shares, the Treasury would have reported a $51 billion loss, rather than a $29 billion loss, the report said. “In total, the Treasury has received back about $204 billion of the bailout funds, or just over half of the money it doled out.”

Federal profits are identical with federal taxes. They represent money taken from the economy. Taxing the economy $204 billion is a poor way to stimulate the economy, and again shows why the recovery has been slow.

“Nearly 80 percent of the money given to banks has been paid back. The Treasury also received $26.8 billion from banks through interest payments . . . The report did not break down the sources of the automobile losses. The government gave the most money to General Motors and is seeking to recoup some through an initial public offering.”

This should read, “Nearly 80 percent of the money given to the banks has been taxed back.”

“The Treasury plans to give A.I.G. $22 billion more. That money will help A.I.G. pay down its debt to the Federal Reserve of New York.”

The federal government will give AIG $22 billion, then AIG immediately will give it back. Only in Washington could this be considered an economic stimulus. So did TARP work? What TARP?

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


No nation can tax itself into prosperity

–How the debt-hawks would “save” Social Security and Medicare

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

The Committee for a Responsible Federal Budget proposes the following steps to “save” Social Security and Medicare. The CRFB projects the indicated 10-year federal savings (more correctly, “increases in payments by you”). If the numbers are correct (big “IF”), here are the implications:

Medicare:

“Increase Cost-Sharing” Government pays $150 billion less. Americans will pay $150 billion more for our health insurance.

“Enact Medicare Malpractice Liability Reform”
Government pays $60 billion less. Americans will be limited as to what we will receive in the event of serious negligence by a doctor or hospital.

“Limit Tax Exclusion on Employer-provided Health Care” Government receives $250 billion more from all employees. This is a $250 billion tax increase for working people.

“Increase Medicare Eligibility Age to 67” $60 “savings” for federal government. We will have to buy private insurance for two additional years – our older years when private insurance is most costly.

“Strengthen the Independent Payment Advisory Board ((PAB).” Government “saves” $30 billion. “Strengthen” is a euphemism. The purpose of PAB is to reduce federal payments for drugs and medical procedures. We Americans will pay $30 billion more.

Social Security:

“Use ‘more accurate’ measure of inflation to calculate cost-of-living adjustments.” Government pays $140 billion less. “More accurate” is a euphemism meaning, “more restrictive.” Result: We’ll receive lower benefits.

“Slow the growth of benefits for middle-and high income earners” Government pays $25 billion less. Remember how the Alternative Minimum Tax was only supposed to affect “rich” people? This proposal eventually would penalize nearly all Americans.

Raise the retirement age to 68, then increase it further, based on life expectancy. Government savings: $? Social Security already pays you nothing if you die before retirement, and not even a living wage if you live after retirement. Now they want to raise the retirement age, so we receive less, and receive it later.

Increase FICA by another 1% for anyone making more that $56,000 per year.
Government savings: $? Since you pay 7.65% and your boss pays another 7.65%, that “little 1%” amounts to an 6.5% FICA tax increase.

Thus, does the mistaken belief that Social Security and Medicare will go bankrupt, erode our quality of life. The federal government is a monetarily sovereign nation, which means it cannot go bankrupt. It can produce unlimited money to pay debts of any size. Similarly, Social Security and Medicare never can go bankrupt, nor can the Department of Defense, Congress, the Supreme Court or any other federal agency. No agency of the federal government can go bankrupt.

Debt-hawks wrongly believe FICA pays for Social Security and Medicare. It does not. FICA could be eliminated, and this would not affect by even one penny, the federal government’s ability to support these federal agencies.

Even the most obtuse debt-hawk recognizes the ability of the federal government to create enough money to pay any bill of any size. So what is the concern? It all boils down to fear of inflation. But, since we went off the gold standard, inflation has not been related to federal deficits (See: INFLATION), and inflation easily is prevented and cured by interest rate control. So in brief, debt-hawks prefer the absolute surety of great harm to us today, because they have the unreasoned, unsubstantiated fear that maybe, possibly, perhaps we sort of might have some unknown degree of inflation at some unknown time in the theoretical future.

Organizations like the CRFB do great harm, by supporting unnecessary limitations on Social Security and Medicare. And that’s not all. Their grim calls for austerity, their unreasoned fear of inflation, has limited the government’s ability to cure this recession, costing millions of people their homes, their livelihoods and their happiness. Debt-hawks claim fiscal responsibility, when in fact they are the most irresponsible people imaginable, prescribing bitter snake-oil cures for real economic problems.

My only hope is that when these debt-hawks personally need help from Social Security and Medicare, the limitations they have supported make benefits unavailable to them. And I hope this recession causes them the great grief they have caused the rest of this nation. That would be justice.

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

No nation can tax itself into prosperity

–Failing U.S. transportation system will imperil prosperity, report finds

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

Failing U.S. transportation system will imperil prosperity, report finds
The Washington Post, 10/4/10

Read this article, then ask the Tea Partyers (You know – those clever people who want less taxes and government) how they plan to handle this.

The United States is saddled with a rapidly decaying and woefully underfunded transportation system that will undermine its status in the global economy unless Congress and the public embrace innovative reforms, a bipartisan panel of experts concludes in a report released Monday.

U.S. investment in preservation and development of transportation infrastructure lags so far behind that of China, Russia and European nations that it will lead to “a steady erosion of the social and economic foundations for American prosperity in the long run.”

That is a central conclusion in a report issued on behalf of about 80 transportation experts who met for three days in September 2009 at the University of Virginia. Few of their conclusions were ground-breaking, but the weight of their credentials lends gravity to their findings.

Co-chaired by two former secretaries of transportation – Norman Y. Mineta and Samuel Skinner – the group estimated that an additional $134 billion to $262 billion must be spent per year through 2035 to rebuild and improve roads, rail systems and air transportation.

“We’re going to have bridges collapse. We’re going to have earthquakes. We need somebody to grab the issue and run with it, whether it be in Congress or the White House,” Mineta said Monday during a news conference at the Rayburn House Office Building.

The key to salvation is developing new long-term funding sources to replace the waning revenue from federal and state gas taxes that largely paid for the construction and expansion of the highway system in the 1950s and 1960s, the report said.
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“Infrastructure is important, but it’s not getting the face time with the American people,” Skinner said. “We’ve got to look at this as an investment, not an expense.”

A major hike in the federal gas tax, which has remained unchanged since it bumped to 18.4 cents per gallon in 1993, might be the most politically palatable way to boost revenue in the short term, the report said, but over the long haul, Americans should expect to pay for each mile that they drive.

“A fee of just one penny per mile would equal the revenue currently collected by the fuel tax; a fee of two cents per mile would generate the revenue necessary to support an appropriate level of investment over the long term,” the report said.

Fuel tax revenues, including state taxes that range from 8 cents in Alaska to 46.6 cents in California, have declined as fuel efficiency has grown. President Obama mandated that new cars get 35.5 miles on average per gallon by 2016, and government officials said last week that they are considering raising the average to 62 miles per gallon by 2025.

Facing mid-term elections this fall, Congress has lacked the will to tackle transportation funding. Efforts to advance a new six-year federal transportation plan stalled on Capitol Hill after the previous one expired last year.

If Congress were to do the report’s bidding, the task would be far broader in scope than simply coming up with trillions of dollars in long-term funding to rebuild a 50-year-old highway system.

The experts also advocated adoption of a distinct capital spending plan for transportation, empowering state and local governments with authority to make choices now dictated from the federal level, continued development of high-speed rail systems better integrated with freight rail transportation, and expansion of intermodal policies rather than reliance on highways alone to move goods and people.

But Mineta noted that 42 days after an eight-lane bridge collapsed into the Mississippi River in Minneapolis a survey found that 53 percent of respondents were against an emergency gas tax increase to pay for infrastructure repairs.

“The shelf life of a tragedy like [I-35W] was 42 days,” he said. Thirteen people died in the collapse and more than a hundred were injured.

The report emphasized that federal policy should be crafted to address congestion by providing incentives that encourage land use that reduces single-occupant commutes and promotes “liveable communities.”

“Creating communities conducive to walking and alternate modes of transportation . . . should be an important goal of transportation policy at all levels of government,” the report said.

It also encouraged expansion of innovative public-private partnerships to further transportation goals, citing the high-occupancy toll lane project in Northern Virginia as an example.
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“The one option that’s not in this report is throwing up our hands,” said Jeff Shane, a former Transportation Department official and a member of the panel. “That seems to be the option that Congress chooses.”

Congress does not want to ask for tax money, so the problems do not get solved. But there is a solution: Federal deficit spending without taxes. Sadly, the debt-hawks’ mistaken belief that deficits are harmful to our children and us, prevents curing our problems. There is a long list of problems our children suffer today, and will suffer in the future, because of the debt hawks. (See: Debt Hawk Problems )

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

No nation can tax itself into prosperity