The great “bad” news and the bad “great” news. The boy who cried “wolf”! Tuesday, Oct 16 2018 

In this era of fake news, where a President can lie with impunity, and face zero concern from his followers, nothing surprises.

For instance, we are told the Saudis did not murder a journalist in their Istanbul consulate.

Instead, he merely was tortured to death by “rogue killers” during an “investigation gone wrong.” Related image

Presumably, these are the same “rogue killers” President Trump blames when excusing Putin’s many murders.

And these are the same “rogue killers” Trump’s latest lover, Kim Jong Un (“We fell in love.”)  has used to murder thousands, including family members. (What’s not to love?)

And then, there were the “rogue: hackers who, behind Putin’s back,  hacked into the U.S. election.

This time, the fake news doesn’t come only from Trump, but from the real news. And, this time the fake news has historical precedents, going back at least 78 documented years, and many more in reality.

Here is the good “bad” news:

U.S. government posts widest deficit since 2012
Jason Lange, Jonathan Spicer, Reuters

WASHINGTON (Reuters) – The U.S. government closed the 2018 fiscal year $779 billion in the red, its highest deficit in six years, as Republican-led tax cuts pinched revenues and expenses rose on a growing national debt, according to data released on Monday by the Treasury Department.

New government spending also expanded the federal deficit for the 12 months through September, the first full annual budget on the watch of U.S. President Donald Trump. It was the largest deficit since 2012.

“In the red” implies some sort of economic negative. You and I never want to be “in the red.”

However, the federal government is different from you and me. BeingMonetarily Sovereign, it uniquely has the unlimited ability to create its own sovereign currency, the U.S. dollar, which it has been doing since the early 1780s.

What does “in the red” mean for a government that can create infinite dollars, and never can run short of dollars?

The purpose of the Reuters article is to make you believe the federal government cannot afford to provide you with free Medicare and free education, and must charge you taxes to pay for any benefits it does provide. Image result for boy called wolf

It’s a gigantic, and long-lived con job, orchestrated by the rich, to widen the Gap between the rich and the rest.

Consider two groups: Group A can run short of dollars (i.e. you and me). Group B never can run short of dollars (the federal government).

By what perverse logic would Group A ever give dollars to Group B?

Now for the bad “good” news:

The data also showed a $119 billion budget surplus in September, which was larger than expected and a record for the month.

“Surplus” is such a wonderful word. You and I love to have a surplus, especially a surplus of money.

But, what does a dollar surplus mean to an entity that has the unlimited ability to create new dollars,  and never, never, never unintentionally can run short of dollars? Why would such an entity even want a surplus?

While a surplus has no value to the U.S. federal government, it has a strong, negative effect on the economy. When the federal government runs a surplus, the dollars come from the economy, and that depresses the economy.

U.S. depressions tend to come on the heels of federal surpluses.
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

The reason is quite obvious. A large economy has more money than does a small economy, so for an economy to grow, its money supply must grow.

Gross Domestic Product = Federal + Nonfederal Spending + Net Exports

When deficit growth declines, economic growth declines:

Recessions (vertical gray lines) begin with a decline in federal debt growth (red line) and are cured by an increase in federal debt growth.

But wait, here’s some good “bad” news.

A senior Treasury official said the monthly surplus was smaller when adjusted for calendar shifts.

Are you confused? That’s the whole point. The rich, who run America, want you to be confused. They want you to believe that the federal deficit is “unaffordable” and the federal debt is “unsustainable.”

Here’s where it gets truly weird:

Economists generally view the corporate and individual tax cuts passed by the Republican-controlled U.S. Congress late last year and an increase in government spending agreed in early February as likely to balloon the nation’s deficit.

Trump and his fellow Republicans have touted the tax cuts as a boost to growth and jobs.

Think about it. The tax cuts will balloon the nation’s deficit, which will boost growth and jobs. Why? Because tax cuts and deficits leave more money in the economy. That’s a good thing, right?

Not according to Office of Management and Budget Director Mick Mulvaney:

“America’s booming economy will create increased government revenues – an important step toward long-term fiscal sustainability,” Mulvaney said in a statement accompanying the data.

America’s economy will boom as a result of tax cuts, and that will create increased government revenues. That’s the old Laffer curve, showing that tax cuts  “pay for themselves” by increasing tax collections.Image result for boy called wolf

The problem is that federal taxes, being financially unnecessary, don’t need to be paid for by taxes. The bottom line is the amount of money coming into the economy.

The more dollars entering the economy, the greater the growth.

You see, Mulvaney doesn’t agree that leaving more money in the economy is a good thing. He thinks (claims) taking more money out of the economy is a good thing.

Mulvany’s “logic,” if it can be called that, is:

We’ll leave more dollars in the economy, which will grow the economy, so we can take more dollars out of the economy (which will shrink the economy) and give them to the government, which doesn’t need them.

If you believe the way to grow the economy is by shrinking the economy, you are ready to be the next Office of Management and Budget Director.

But Mulvany isn’t alone:

The Bipartisan Policy Center called the report “a wake up call” for policymakers to turn things around. “The fact that our government is closing in on trillion-dollar deficits in the midst of an economic expansion should be a serious issue for voters and candidates.”

William Hoagland, its senior vice president, said of next month’s U.S. congressional elections.

Hoagland’s comment reminds me of a similar comment by Robert M. Hanes, president of the American Bankers Association: 

New York Times: Hanes: “. . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship. . . insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”

Oh, did I mention that Hanes made his comment on September 26, 1940, when the federal debt was only $40 Billion? It’s $15 Trillion today, and the fake, time-bomb, con job warnings haven’t changed.

Seventy-eight years, year-after-year of “boy who cried wolf” warnings, and nothing has changed and nothing has been learned. The public still believes, and is frightened by, the same old lies.

And then the weirdness reaches its pinnacle:

Much of the widening of the deficit came from more spending on interest payments on the national debt.

Borrowing has increased over the past year, partially to make up for slower growth in tax revenues because of the tax cuts, while military spending has also risen.

Interest payments are an example of a government, which has infinite dollars, pumping dollars into an economy that needs dollars to grow. This is supposed to be a bad thing??

And finally, “borrowing.” The federal government does not borrow. Having the unlimited ability to create dollars, why would the federal government need to borrow?

It doesn’t borrow, but instead, it accepts deposits into Treasury Security accounts.

The purpose of these accounts is not to provide the government with spending funds, of which it has infinite. The dollars deposited into T-security accounts are not touched. In fact, they are added to periodically, by interest payments.

When T-securities mature, the dollars in them are returned to the depositors. The dollars are not used by the federal government.

Why does the government accept T-security deposits, if not to use the dollars ? The real purpose of T-securities is:

  1. To provide a safe place to hold dollars, which increases the stability of the dollar and,
  2. To assist the Federal Reserve in controlling interest rates and thereby to control inflation.

We conclude with this last bit on nonsense from the Reuters article:

Adding debt servicing costs, the U.S. Federal Reserve is raising interest rates roughly once per quarter in the face of a hot labor market and some signs of inflation.

Some Fed officials have warned that rising U.S. deficits could hamper any U.S. fiscal response to a downturn.

Whenever there are signs of inflation, the Fed increases interest rates. This increases the Demand for dollars, which increases the Value of dollars, thereby stopping inflation. (Value = Demand/Supply).

There is no mechanism by which rising deficits can “hamper any U.S. fiscal response to a downturn.” Quite the opposite, rising deficits help prevent a downturn by adding dollars to the economy.

We’ll end with economics expert, Donald Trump, criticizing the Fed about something of which he knows nothing.

Trump has in turn criticized the Fed’s monetary tightening, saying last week that the central bank had “gone crazy.”

“Gone crazy” means preventing inflation by increasing the value of a dollar, while also requiring the Treasury to pump more stimulus interest dollars into the economy.Image result for boy who cried wolf

 

Bottom line: For more than 78 years you have been told the same “boy-cries-wolf'” warning, and every year, no wolf shows up. Seventy-eight years!

In the story, the villagers stopped believing the boy, and didn’t come running when a real wolf appeared and the boy cried, “Wolf!”

The last line in the story was, “Nobody believes a liar…even when he is telling the truth!”

This year, you again are being told the same lie — and this year again there will be no wolf.

The only question: Will you again believe the liars?

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

 

The stunning differences between MMT and MS Sunday, Oct 7 2018 

BACKGROUND

You may find it strange that two economics philosophies – Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) – can agree on the same, fundamental truth, and yet diverge into markedly dissimilar paths.

The fundamental truth of both MMT and MS is:

A money issuer cannot unintentionally run short of its own sovereign currency.

The U.S. government is a money issuer. It issues U.S. dollars. In the early 1780s, the U.S. government created laws from thin air, and some of those laws created the U.S. dollar, also from thin air.

The government created as many dollars as it wished, and it arbitrarily gave those dollars a value it related to an arbitrary number of ounces of silver. Subsequently, the federal government arbitrarily has changed the value of the U.S. dollar several times.

This unlimited power to issue unlimited money and to change its value, is known as Monetary Sovereignty. The federal government is sovereign over the dollar.

U.S. cities, counties, and states use dollars, but they are not the issuers of the U.S. dollar. They are not Monetarily Sovereign. They can run short of dollars.

Similarly, the euro nations, France, Germany, Italy, et al use the euro, but they are not the issuers of the euro, so they can run short of euros. The issuer of the euro is the European Union, which being Monetarily Sovereign, cannot unintentionally run short of euros.

Every form of money, including the U.S. dollar, is a form of debt.

All debt requires collateral. The collateral for federal money/debt is “full faith and credit.”

This may sound nebulous to some, but it actually involves certain, specific and valuable guarantees. For the U.S. dollar, these guarantees include:
A. –The government will accept only U.S. currency in payment of debts to the government
B. –It unfailingly will pay all it’s dollar debts with U.S. dollars and will not default
C. –It will force all your domestic creditors to accept U.S. dollars, if you offer them, to satisfy your debt.
D. –It will not require domestic creditors to accept any other money
E. –It will take action to protect the value of the dollar.
F. –It will maintain a market for U.S. currency
G. –It will continue to use U.S. currency and will not change to another currency.
H. –All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

Laws have no physical existence. You cannot see, hear, taste, smell, or touch a law. Having no physical existence, the creation of laws is unlimited. The government could create a billion laws tomorrow, if it so chose.

Every form of money in history has been created by laws, written, oral, or understood.

No money in history has had a physical existence. Gold, for instance, which does have a physical existence, is not and never has been, money.

In its raw form gold merely is a barter commodity, no different from any other material that is bartered. When gold is stamped into coins, the face value of the coins represents money, as a title to money, while the physical gold remains a barter commodity.

It is quite normal for a coin’s face value and the barter value to differ. This is true, not only of gold coins but of all coins — copper, nickel, silver, etc.

When the barter value exceeds the face value, coins often are melted down or simply sold by weight. At one time this even was happening to copper pennies.

Because gold has a physical existence, it cannot be created in unlimited amounts. Unlike U.S. dollars, gold coins cannot be created in unlimited amounts.

Just as a house title is not a house, and a car title is not a car, a paper dollar is not a dollar. Having no physical existence, dollars can be created in unlimited amounts by our Monetarily Sovereign federal government.

If it wished, the U.S. federal government could create many, many trillions of dollars today, at the stroke of a computer key.

“It’s our little secret. Don’t tell the people we don’t need or use their tax dollars.”

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Alan Greenspan: “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. A government cannot become insolvent with respect to obligations in its own currency.”

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e.,unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.

Even entities that are not Monetarily Sovereign — banks, businesses, people, euro nations — have the power to create dollars, though this power is limited. Since all money is debt, all creators of debt can create money.

When you borrow from a bank, the bank credits your checking account, which increases the M1 money supply. Bank assets are not used for lending. The dollars you borrow are newly created.

By law, a bank cannot create unlimited dollars. It is limited to a percentage of its capital. (Contrary to popular myth, reserves do not limit bank lending, since reserves are freely available from the federal government.)

Even you can create dollars. When you use your credit card, the merchant receives new dollars, while you still retain your dollars until you pay the credit card bill.

Money is created in two ways and destroyed in two ways:

Dollars are created by:
A. Federal bill paying
B. All forms of dollar lending (mortgages, bank loans, credit card spending)

Dollars are destroyed by:
A. Federal Taxing
B. Repayment of loans

(State and local government taxing does not destroy dollars. Those tax dollars are stored in private sector banks. It is federal taxes that are destroyed upon receipt.)

Given its unlimited ability to create U.S. dollars, the U.S. government has no need to ask anyone for dollars — not you, not me, not China.

This means the U.S. neither levies taxes nor borrows for the sake of obtaining dollars to spend.

Even if all its tax collections and all so-called “borrowing” totaled $0, the U.S. government could spend unlimited amounts and pay unlimited creditors, forever.

What wrongly is termed “federal debt” actually is the total of deposits into T-security accounts. When T-securities mature, the federal government pays them off by returning the dollars in them to the T-security owner. No tax dollars are involved.

Neither you nor your grandchildren are liable for the federal “debt” (deposits).  Federal taxes do not pay for federal deposits.

The government creates new dollars by the very act of paying creditors. To pay a creditor, the federal government sends to the creditor’s bank instructions, telling the bank to increase the balance in the creditor’s checking account.

At the moment the bank obeys those instructions, new dollars are created and added to the money supply measure called, “M1.”

If the federal government creates new dollars by paying bills, and so does not need to tax, why indeed does it levy taxes?

MMT and MS agree on three reasons to levy taxes:
1. To control the economy by making some products, services, and activities more or less expensive.
2. To give the appearance that the government does not have the unlimited ability to create dollars, and therefore to discourage the populace from demanding unlimited benefits.
3. To force the populace to demand dollars, and given that Value = Demand/Supply, taxes provide value to money.

All of the above constitutes part of the underlying truths with which both MMT and MS agree.

WHERE MMT AND MS DIVERGE

It is from here, that the two philosophies diverge, and that divergence begins with reason #3, above.

Image result for dollar bill

A title to money, supported by taxes and by the full faith and credit of the government.

MMT claims that taxes are necessary to create demand, and thus give value to money.

A leader of MMT, Professor Randall Wray has written: “Taxes or other obligations (fees, fines, tribute, tithes) drive the currency.”

MS agrees that while taxes do create demand and do give value, they are not necessary.

It is quite possible for money to have value without the need for taxes.

There are, in fact, thousands of money examples that have demand unsupported by any form of tax. Some are listed here.

Additionally, product and service coupons represent money for which there is no tax. And, there are currencies in which taxes are collected, but have scant value.

Image result for coupons

A title to money, not supported by taxes but only by the full faith and credit of the manufacturer.

Many currencies have been used for tax payments, but yet are subject to hyperinflation.  Taxes did not rescue those currencies from value loss.

What then “drives” the demand for a currency? As with every other thing, Reward and Risk drive demand. (Demand=Reward/Risk)

For money, Reward is the acceptance by others, plus the interest paid to the holder of a currency.

That is why the Federal Reserve increases interest rates when it wishes to fight inflation (i.e, to increase the value of a dollar). Risk is the threat of inflation and the full faith and credit of the issuer.

Initially, the demand for a currency relies on the perceived value of the full faith and credit supporting the currency.

When you borrow, your note is a form of money, the demand for which is determined by your full faith and credit. Your lender considers your note to be money; your full faith and credit, not federal taxes, are key determinants of your note’s acceptance as money.

The question about whether taxes are necessary to provide demand for a currency, is one area of divergence between MMT and MS. But there is a far more important conflict, and it involves the most fundamental goals of each discipline.

The stated fundamental goal of MMT is to achieve full employment and price stability.

Understanding Modern Money:The Key to Full Employment and Price Stability
To achieve its goal, MMT proposes the Jobs Guarantee (JG). Supposedly, price stability is achieved by considering unemployed people as “buffer stock,” i.e. interchangeable pieces to be slotted into vacant jobs.

As Professor Bill Mitchell (no relation) inimitably describes it:

“The MMT Job Guarantee . . .  is a buffer stock mechanism which unconditionally hires at a fixed priced in order to redistribute labour resources from an inflating sector to a fixed price sector or from a zero bid state to a fixed price state.“

To an MMT economist, these are not viewed as people, but rather as minimum-wage, “labor resources” to be “redistributed.”

Report: A minimum-wage job can’t pay the rent anywhere in U.S. 

A full-time minimum wage isn’t enough money to rent an averagely priced one-bedroom home anywhere in the U.S., according to an annual report issued this week by the National Low Income Housing Coalition.

An “inflating sector” is one in which salaries are rising. MMT wishes to “redistribute” “labor resources” to a sector where salaries are stagnant.

The idea is that when workers are scarce, salaries ordinarily would rise, hypothetically causing inflation. But the government’s minimum-wage, “buffer stock” would come to the rescue of businesses, and hold salaries down.

And when workers are plentiful, salaries normally would fall, causing some element of deflation, but the buffer stock would receive minimum wages, which would mitigate the reduction in salaries.

But workers still would be stuck with minimum-wage salaries.

The MMT approach has problems, among which are:
1. There is no clear relationship among unemployment, inflation, and salaries. U.S. inflations have been related to oil prices.

Blue=median wages; Red=Consumer Price Index; Yellow=Unemployment;

2. The term “buffer stock,” implies a monolithic, machine-like workforce, where “labor resources” (aka “people”) can be slotted-in wherever needed, like dumb pegs in a business board. The term does not include such human variables as age, income requirements, job skills and requirements, geography and numerous other human preferential factors.

To MMT, you are not a person; you are “buffer stock” and a “labor resource.”

3. The easy availability of minimum-wage jobs discourages above-minimum-wage job availabilities, People would not be paid extra for above minimum-wage effort, so effort is discouraged.

The MMT’s JG proposes offering federal, state, local government and private sector jobs (an unknown percentage of each) to all those who want minimum-wage jobs.

Presumably, by adjusting the minimum wage, some measure of full employment can be achieved. “Full employment” does not mean total employment, but rather, everyone who wants a job that the government offers, gets one.

While the goal of MMT is full employment and price stability, MS suggests a far different direction.

The goal of MS economics is not to force people to labor, but rather to improve people’s lives.

This requires narrowing the Gaps between the various income/wealth/power groups, as expressed by Gap Psychology.

“Rich” is a comparative concept.  You are “rich” if you have $100, and the rest of the population has only $10, but you are poor if you have $1,000 and the rest of the population has $100,000.

So the two ways to become “rich,” are to receive more for yourself, or to force others to receive less. Either way will do.

It is a rule of human psychology that we want the income/wealth/power Gap below us to widen and the Gap above us to narrow.

Said another way, we wish to distance ourselves from lower income/wealth/power people, while coming closer to the higher income/wealth/power people.

This accounts for middle-income people resenting lower-income people receiving government benefits, even when those benefits cost the middle-income nothing.

Visceral hatred of immigrants is due to Gap Psychology — the fear that the poor are coming closer to us.

To achieve its goal of improving people’s lives, MS proposes the Ten Steps to Prosperity (below).

Rather than forcing people to work in order to receive minimum wages, the Ten Steps to Prosperity provides a path and a means to a better life.Image result for two separate paths

The Ten Steps give people the time and incentive to become educated in the area of their own choice, to work or not, where pleasant and convenient, and to become truly productive rather than toiling in a dead-end, make-work job.

While MMT’s JG views people as “buffer stock,” MS’s Ten Steps view people as human beings, with preferences, goals, and desires, who will contribute more to America in a meaningful job that pleases them, rather than in a mind-numbing task.

SUMMARY

In summary, MMT and MS begin at the same factual place, but then wildly diverge.

Modern Monetary Theory (MMT) promotes the economist’s business view that “buffer stock” (aka “people”) must labor and accede to redistribution, in order to receive government benefits.

Perhaps the fundamental error of MMT’s JG is the tacit and false belief that there are not enough minimum-wage jobs in America.

The economists of MMT seem to believe that a significant number unemployed people want, but are unable to find, minimum wage work at restaurants, casinos, beauty shops,  amusement parks, landscapers, garment factories, as cashiers, ushers, hosts, farm workers, home cleaners, etc.

Monetary Sovereignty (MS) promotes the humane view that the role of government is to improve people’s lives, and this does not require people to labor for minimum wages at onerous tasks.

Take your pick.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

How the MMT “Jobs Guarantee” ignores humanity. Thursday, Oct 4 2018 

Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) are united by the understanding that a Monetarily Sovereign government cannot unintentionally run short of its own sovereign currency.

Thus, the U.S. federal government, unlike state and local governments, which are monetarily non-sovereign, neither needs nor uses tax dollars to fund its spending.

Federal taxes may find purpose in helping to direct the economy by making some products and services more or less attractive, but federal taxes do not provide spending funds.

Even if federal tax collections were $0, the federal government could continue spending forever.

Further, being sovereign over the U.S. dollar, the federal government has the unlimited ability to set the value of the dollar i.e. control inflation.

Yet a leader of MMT, Professor Randall Wray  has written: “Taxes or other obligations (fees, fines, tribute, tithes) drive the currency.”

This forces one to ask, “Specifically, what does ‘drive’ mean?” Does it mean:
1. When taxes are reduced, the value of money falls?
2. If taxes were zero, the value of money would be zero?
3. Do cryptocurrencies, which are not supported by taxes, have no value?

The answers: No, no, and no.

Professor Wray also claims, “the Jobs Guarantee (JG) is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability.”

Specifically, what does “anchors” mean?
1. Since JG does not currently exist, is the U.S. dollar “unanchored”?
2. Does providing college graduates with low-intelligence, ditch-digging jobs enhance price and financial stability?
3. Is forcing people to work morally and economically superior to giving them money and benefits?

Again, no, no, and no.

We often have criticized the JG here, here, here, and elsewhere.  JG is an impractical, obsolete concept, more suited to the Industrial Age than to the current and future Artificial Intelligence (AI) age.

Reader John Doyle wrote, “Professor “Bill Mitchell (no relation) goes to considerable lengths to diss most ideas of what passes for a Jobs Guarantee. I feel one should take careful note of his views:” http://bilbo.economicoutlook.net/blog/?p=40464#more-40464

The essence of Bill Mitchell’s article can be found in this line:

Image result for people as robots

“We are buffer stock. We must labor to receive benefits.”

The MMT Job Guarantee . . . is a buffer stock mechanism which unconditionally hires at a fixed priced in order to redistribute labour resources from an inflating sector to a fixed price sector or from a zero bid state to a fixed price state.

Translation: JG sets salaries at a single, low level, where raises are not allowed, but provides jobs at those levels where none are available.

Is this what our nation needs?

According to Randall Wray, the essence of MMT is JG, and according to Bill Mitchell, the  JG is a buffer stock (of human labor) mechanism to control inflation.

Thus Modern Monetary Theory adherents believe the central economics problems addressed by MMT primarily involve employment and unemployment.

Supposedly, the Jobs Guarantee (JG) and a “buffer stock” control over inflation are the key solutions to what ails an economy.

By contrast, Monetary Sovereignty (MS) suggests that providing a job to each person who wants money already is an outmoded view, as robotics augmented with Artificial Intelligence (AI) increasingly demonstrates every day.

The notion that humans must labor in order to receive the fruits of an economic system reflects a combination of biblical work ethic applied to increasingly obsolete manufacturing methods.

On the horizon lurks the day when very few people will be “employed,” as we now understand the term. Machines will do the vast majority of the work, and people will reap the benefits, without human labor.

Why focus on work when we should focus on benefits?

In short, employment is not what people crave. Rather, they crave money, or more specifically people crave what money can buy.

The central economics problem addressed by MS, is the widening income/wealth/power Gaps between the richer and the poorer, and it is the Ten Steps to Prosperity (below), not JG, that addresses those gaps.

(There’s an old line that goes something like this: “Not many people die whispering,  ‘I wish I had spent more of my life in the office.'”).

JG doesn’t address fundamental human desires. It ignores them.

Here is Wray’s summary of his JG version:

1. The JG should pay a living wage with good benefits.
In line with other progressive proposals, the JG wage should establish a national minimum wage at $15 per hour, with free Medicare-style healthcare. It should also provide free childcare to enable parents to participate in the program.

Image result for ignoring a beggar

Because you don’t work, you get no money.

Comments:
A “living wage” is not, and never can be, “a national minimum wage” of any specific amount. A “living wage” (whatever that term may mean) in Manhattan or San Francisco is considerably different from a living wage in a Mississippi town.

Further, while adding Medicare and childcare makes JG more palatable, they are not intrinsic parts of JG. They are parts of the Ten Steps to Prosperity.

What about free education, and why not offer “Medicare-style” benefits to those not participating in JG? Is there a moral objection?

2. Congress will appropriate the necessary funds to pay program expenses. No additional taxes will be levied.

Comments:
Correct: Federal taxes do not fund federal spending. No federal program ever requires taxation.

3. The JG should be universal in the sense that it serves every community, offering jobs where people live and providing real benefits to their communities.

Comments:
Here is where the academic ignorance of reality comes to play.

Exactly how will the government be able to “offer jobs where people live”? How will JG offer jobs in every city, every town, every village and every hamlet in every state in the U.S.?

I may have missed it, but I have not seen an MMT description of the department structure and mechanism by which the U.S. government can accomplish this task.

It’s a pie-in-the-sky wish, not a plan.

4. The JG should not devolve to either workfare or welfare. The social safety net should not be dismantled; no existing social services should be eliminated.

Individuals should be able to continue to receive existing benefits if they do not want to work in the JG program.

Comments:
But workfare is exactly what JG is. You must work at a minimum-wage job, to get money and many social benefits are contingent on employment and income.

All those laws would need to be changed, somehow.

At the same time, the JG should not provide income support to those that do not work in the program. The JG should be seen as an employment program in which workers are paid for work.

The program should have visible benefits to communities so that the workers in the program are recognized as making positive contributions in return for their wages. The program’s purpose is to provide paid work, not welfare.

Comments:
Do communities really feel that minimum-wage workers — street sweepers, fast food workers, Walmart greeters — must make “positive contributions”?

Workers can be fired for cause—with grievance procedures established to protect their rights, and with conditions on rehiring into the program

Comments:
Visualize millions of minimum-wage workers spread all over the 50 states, each working in different jobs. Who will supervise each of them? What are their rights and who will protect their rights? What are the conditions for firing and rehiring them, and who will do the rehiring?

It’s all very nebulous, as though these human “details” don’t really matter.

5. However, there should be room in the JG for time-limited training and education.

While on-the-job training should be a part of every project, proposals can be solicited for specific training and basic education programs that will prepare workers for jobs in the JG — and, eventually, for work outside the JG. It is important that these are time-limited and that the training is for jobs that actually exist.

Comments:
Who will do the training?
Who will train and supervise the trainers?
Who will create and conduct the basic education programs?
Why “time-limited” and what is the time?
And this is the big one, visualize trying to figure out which jobs “actually exist” and are wanted by each trainee in America.

6. Project implementation and management will be decentralized. There should be diversity in the types of employments and employers —- to help ensure there are projects that appeal to workers and their communities.

Projects should go through several layers of approval before implementation (local, state or regional, federal) and be evaluated at these levels once in progress.
Decentralization helps to protect the program from whatever political winds emanate from the du jour occupant of the White House.

Comments:
The above is so ridiculous it was difficult to keep from laughing as I read it. Think about bureaucrats making sure there is:
–Diversity of types of employments
–Diversity of types of employers
–Several layers of approval (local, state, regional, federal)
–Decentralization

Surely, this cannot be serious. It describes the largest bureaucracy in American history. It would dwarf the military. In of itself, it would eliminate unemployment in America.

7. Where possible, proposals should scale-up existing projects with proven track records and with adequate administrative capacity to add JG workers. Federal spending should not subsidize administrative expenses.

Comments:
Scale up existing projects? That’s like growing companies. Who in the U.S. bureaucracy would do that?

How would these government funded businesses not compete with the private sector that is not blessed with federal funding?

And if administration is not federally funded, who would do the administering?

8. The JG should not be used to subsidize the wages of workers employed by for-profit firms. This distorts markets and is not likely to generate substantial new employment.

Image result for mathematician

According to my formulas, JG should work if you’re buffer stock.

Private business is already heavily subsidized by all levels of government. The JG should not be used as yet another corporate welfare program.

However, private firms will benefit indirectly (and greatly) from the program as it provides a pool of hirable labor and as it contributes to economic growth that improves markets for firms.

Comments:
Are the workers employed by the government or by private industry. If by the government, that competes with private industry.

If employed by a private industry, that subsidizes the wages of that industry.

The notion that private industry is “heavily subsidized” by the government, is mysterious. Does being “subsidized” mean being a vendor? I wouldn’t call that a subsidy.

Or does being subsidized mean receiving tax credits, i.e. being penalized less, which also is not a subsidy.

9. Direct employment by the federal government for the JG should not dominate the program. Most employment should be administered at the local level -— where the workers are, in the communities where they will work.

Comment:
So, it’s partly government workers and partly private workers. So who will hire for the government and in what departments?
And who will be the employment agency for private jobs?
Who will “administer” employment at the local level, in the thousands of communities across this vast nation?

The JG program will probably need to create 15 million new jobs—six times greater than the number of federal employees today.

Comment:
The federal government is going to supervise 15 million new jobs all over America?? Who is qualified to do that? How will they do it?

If all 15 million were to join the federal workforce, supervision of all these new workers would, alone, require hiring a large number of additional federal employees. This would be politically difficult even if the massive scaling-up of the federal workforce were administratively possible.

Comments:
Politically difficult” is the understatement of the year. It would be functionally a disaster.

The federal government’s role in the direct provision of jobs should be focused on providing projects to underserved communities and workers—after not-for-profits and state and local governments have employed as many as they can.

Comments:
“Underserved communities” are communities with few jobs. But Professor Wray wants the government to find most of the nonexistent jobs in the private sector.

10.Inclusivity and experimentation should be encouraged. The federal government should solicit proposals for novel approaches to job creation. For example, workers’ co-ops could be formed to propose projects in which wages, benefits, and limited materials costs would be covered by the federal government for a specified time period.

Comments:
I have no idea what this means, and I suspect Professor Wray is similarly at sea.

11.Consistent with point 10, project proposals put forth should not be summarily dismissed simply due to political bias.

Comment:
You’ll have to go to the original proposal to figure this one out. I can’t.

12. With decentralization, the types of projects permitted would take account of local laws and rules, including prevailing wage laws and union wage rates. With the JG paying $15 per hour, this means that in many states and localities, rules and laws will prohibit various types of work, including construction. In those areas, JG workers will not build infrastructure, for example.

Comments:
As if the job weren’t complicated enough, the federal bureaucrats would have to keep track of, and follow, “local laws and rules.” That should prove interesting.

13.Exceptions to the uniform wage should be considered, but this should not become the norm. For example, state or local governments might want to subsidize (at their own costs) the federally paid wage of $15 per hour in order to increase wages to some higher level. This might be because of high living costs locally. Or some JG employers might want to offer additional benefits (at their own cost) to workers, including housing allowances for high rent areas.

Comment:
And of course, the federal bureaucrats would be expected to allow for these exceptions when offering federal jobs in each locality. What could possibly go wrong.

14. Limited pilot programs that experiment with different models deviating from what is described above might also be considered. For example, a pilot program run by the federal government, with all participants hired as federal employees, might be tried before the JG is imple-mented on a national scale

Comment:
According to the the 2012 US Census Bureau there were 90,000 local governments of all types in the United States, each with different sets of laws that an employer must consider.

Learning, keeping updated with, and following those myriad laws should be quite a challenge, something the JG folks have not even begun to consider.

Bottom line: JG is a program created by economists who are hoping that “some devil” will be able to figure out the details because these business-ignorant folks don’t bother with such trifles.

The sad part is the thousands of hours MMT people have devoted to the academic side of economics, without understanding business realities.

I personally have spent 50 years managing and owning businesses. The MMT professors, some of whom know me, could have asked for my thoughts before wasting all those years on naivete jobs and “buffer stock,” rather than on human needs.

I resent all those brilliant men and women, who are blind to the facts that jobs are not a human goal, and that no one wants to be buffer stock. These economists have focused on their charts, graphs, and mathematics, and have overlooked the personal element of their science.

The human problem is not jobs; the problem is the income/wealth/power gap between the rich and the rest. Not only does JG not solve the gap problem, but it exacerbates the gap by enticing people and families into a minimum-pay existence.

I have only two good things to say about JG:

  1. It would be expensive, requiring the federal government to pump many billions of stimulus dollars into the economy.
  2. It wouldn’t cost taxpayers one cent, because no federal spending requires or uses tax dollars.

Otherwise, the Ten Steps to Prosperity (below) is a far better, and easier-to-implement program, than JG, and it would narrow that damn Gap.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

 

That ol’ debt crisis, it just keeps loomin’, it keeps on loomin’ along. Saturday, Sep 29 2018 

On February 10, 2016, we published, “From ‘ticking time bomb’ to ‘looming collapse.‘”

The post described the fact that in 1940 the following article was published:

Sept 26, 1940, New York Times: Deficit Financing is Hit by Hanes: ” . . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship, Robert M. Hanes, president of the American Bankers Association asserted today.

He said, “insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”

At the time, the federal debt was a paltry $40 billion.

In the 78 years that followed, week after week, month after month, many thousands of similar articles have been published by “experts,” each warning about the imminent crisis we faced because of the increasing federal debt.

Today, the misnamed “debt” has reached $16 Trillion, a gigantic 40,000% increase from the 1940 level, and the economy is humming.

You might wish that after 78 years of being wrong, wrong, wrong, the “experts” might have learned something, if not facts, then at least, humility. Sadly, your wish has not been granted.

According to the latest “expert” to pontificate, John Steele Gordon, the debt crisis still “looms.”

Image result for john steele gordon

John Steele Gordon

The Looming Debt Crisis
SEPTEMBER 27, 2018 BY JOHN STEELE GORDON
Everyone has a credit limit.

The New York Times has a frontpage story this morning on how the rising federal debt will soon begin to crowd out other federal spending.

His impressive bio reads, “He specializes in business and financial history. He has had articles published in Forbes, Forbes ASAP, Worth, the New York Times and The Wall Street Journal Op-Ed pages, the Washington Post’s Book World and Outlook. He is a contributing editor at American Heritage, where he has written the “Business of America” column since 1989.

“Everyone” may have a credit limit, but the U.S. federal government is not like “everyone.” It does not have a credit limit. What it does have is the unlimited ability to create its own sovereign currency.

Do you have a sovereign currency? No? Neither do I. But the federal government has one, and it’s called, “the U.S. dollar.” The sovereign federal government can create endless sovereign dollars, with which to pay its bills.

How does federal “debt,” which actually is the total of deposits into Treasury Security accounts, at the Federal Reserve, “crowd out” other spending?

How can interest-paying bank deposits “crowd out” federal spending?

Does “crowd out” mean that paying interest on the “debt” (deposits) will leave less for other spending? No.

Perhaps the clue to Mr. Gordon’s “thinking” can be found in his article:

In the not too distant future, interest payments on the debt could pass military spending.

The Times is right, although it ascribes the impending crisis to both the Trump tax cuts and the rise in interest rates, which the Fed has slowly increased to normal levels after years of near-zero rates following the onset of the recession in 2008.

Crowding out? Check the following graph:

Federal spending: Blue line. Federal interest payments: Green line. No sign of federal spending being “crowded out.”

The “crowd out” claim is utter nonsense.

In essence, Mr. Gordon tells you the federal government is running short of dollars. Yikes!

He seems to believe that because the Treasury will take in fewer dollars (because of tax cuts), and will spend more dollars (because of interest rate increases), the U.S. Treasury will experience a dollar shortage. That’s the “impending crisis.”

Despite Mr. Gordon’s “expert” credentials, and his gloomy predictions, the federal government cannot run short of dollars to pay for goods, for services, for interest, for benefits, and for anything else it wants to pay for.

St. Louis Federal Reserve: “As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.

So what is the crisis? Again, no one knows. It’s a fake crisis. It’s been a fake crisis since 1940.

Gordon’s article continues:

But federal receipts are up in 2018 by $24 billion, not down, arguably because of the tax cuts.

A booming economy automatically increases tax receipts as companies have higher profits, employees have bigger incomes, and Wall Street has greater capital gains.

The problem lies not with the tax cuts but, as always, with spending. We spent in deficit during the recession, as we always have.

The deficit in 2009 was $1.412 trillion, higher than the entire national debt as recently as 1983. But in times of prosperity, the government should spend in surplus, or at least hold spending steady.

Oh, geez, this really is getting bad. Gordon says, “The problem lies not with the tax cuts but, as always, with spending.”

I hate to break it him, but from the standpoint of the so-called deficit “problem,” tax cuts and spending are identical. One reduces Treasury income; the other increases Treasury outgo. Same result.

But so what? The Treasury cannot run short of dollars. Even if all tax collections were $0, and federal spending tripled, the government could continue paying its bills, forever.

Image result for ben bernanke

Ben Bernanke

Fed Chairman Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Gordon does not understand that the federal government not only has no need for income, but it actually destroys the dollars it receives.

That’s right. The U.S. Treasury destroys every one of those precious tax dollars you work so hard to earn. The instant those dollars are received, they cease to be a part of any money supply — not M1, not M2, nor M3, not L, not any. Gone.

If you were to ask how much money the federal government has, the question would be nonsensical, for the answer would either be “infinite” or “none.” The U.S. federal government creates brand new dollars, every time it spends dollars.

Side note: State and local governments, being monetarily non-sovereign, don’t have this ability. Your tax payments to your state and local governments are needed and used, not destroyed.

That is a fundamental difference between Monetary Sovereignty and monetary non-sovereignty.

Gordon’s article continues:

In 1946, the debt was $269 billion, equal to almost 130 percent of GDP. But in the next 14 years, we added only $17 billion to the debt and the booming American economy of those years reduced the debt/GDP ratio to 58 percent.

By 1970, it had fallen to 39 percent of GDP. The roaring inflation of the 1970s reduced the percentage to 34 percent, despite a tripling of the debt in dollar terms.

In the 1980s, inflation waned but spending did not and the debt-to-GDP ratio climbed sharply.

After the Republicans swept the election of 1994, Congress kept spending in check. Outlays between 1994 and 2000 rose by 22 percent, while receipts rose by fully 61 percent. Again, the debt-to-GDP ratio fell from 69 percent to 57 percent.

This past May, we published, “Enough already, with the Debt/GDP ratio.” The post included this line:

The Federal Debt/GDP ratio is absolutely meaningless, a useless, designed-to-be-misleading number that has been foisted on an innocent public.

The misnamed federal “debt” actually is the total of deposits into T-security accounts,  which are similar to bank savings accounts.

GDP is total spending in the U.S. Why on earth would anyone worry about the ratio of deposits in the Federal Reserve Bank vs. spending? The federal government does not use GDP to pay its debts.

Gordon’s misleading article drones on:

If the federal government was able to restrain spending to match receipts in the postwar years in the 1990s, it can obviously do so now.

At some point, even the United States can max out its credit card.

Gordon, the professional economics writer, doesn’t understand the fundamental differences between federal (i.e. Monetarily Sovereign) financing and personal (i.e. monetarily non-sovereign) financing.

The federal government doesn’t have or need anything remotely resembling a “credit card.” It creates unlimited dollars, ad hoc, every time it pays a bill.

Image result for alan greenspan

Alan Greenspan

Fed Chairman Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

But since Congress seized control of the budget process in 1974 with the wildly misnamed Budget Control Act, fiscal discipline has been in short supply.

A Congress elected on a fiscal discipline platform can do it, as it did in the 1990s.

But unless the government starts keeping honest books and the president is given the power to control total spending, we are going to stumble into disaster sooner rather than later.

If you owned a money machine, and like the U.S. government, you had the unlimited ability to create dollars, what would be the meaning of “fiscal discipline”?

If you owed a million, a billion, or a trillion dollars, but you could create unlimited dollars, would you be “stumbling into disaster”?

The worst financial disaster currently facing America is the ongoing, incessant series of articles like Gordon’s, warning America that the federal deficit and debt are too large.

The effect of these articles, if not the purpose, is to make you believe the federal government cannot afford your social benefits, or your taxes must be raised. Both are lies.

The federal government easily could afford the “Ten Steps to Prosperity” (below), while cutting taxes. And because the government is sovereign over the dollar, it has the unlimited power to control the value of the U.S. dollar, i.e to control inflation.

How? Interest rate control is the method the Fed uses. (Raising interest rates increases the demand for dollars, making dollars stronger, i.e. more valuable.)

In more extreme cases, a Monetarily Sovereign government simply can set the value of a dollar by fiat. When the Monetarily Sovereign UK devalued the pound in 1967, and the Monetarily Sovereign Mexico devalued the peso in 1994, they did so by fiat. They had absolute control over their sovereign currencies.

Even the U.S. often has revalued its dollar by fiat, when it has changed the relationship to silver and gold.

In summary:

  1. The U.S. cannot run short of dollars to pay its bills. Even if federal tax collects fell to  $0 and spending tripled, the federal government could continue to spend and pay creditors, forever.
  2. Social programs like Social Security, Medicare, Medicaid, food stamps and other poverty aids cannot run short of funding unless Congress wills it.
  3. The federal government could afford to eliminate the FICA payroll tax and income taxes, while providing such benefits as Medicare for every man, woman, and child in America, monthly bonuses for all, free education for all, even a salary for attending school.
  4. Being sovereign over the dollar, the U.S. government has the unlimited ability to set the value of the dollar by fiat, i.e. to control inflation.

Pay no attention to scare stories about how the federal deficit and debt are too high, when they, in fact,  are too low. Deficit and debt reductions lead to recessions and depressions. 

Economic growth requires money growth; the federal government is the one agency that has the unlimited ability to grow the economy.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..

The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

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