The economics you don’t know and never think about, but “this shit is for real.” Wednesday, Sep 21 2016 

Economics: There are many forms, but few are studied. Most economists think primarily of national economics — the economics of nations.

It is as though all economics is derivative, and whether you’re talking about Monetarily Sovereign governments like the U.S. or Canada, or monetarily non-sovereign governments like Germany or Illinois or Chicago, the same fundamentals apply.

Supply and Demand, Risk and Reward, recessions and depressions, debt and deficits, inflation and deflation, GDP and GNP — all the usual suspects are there.

And to some degree, this is true for cities, counties, states, businesses, and nations.

But what about neighborhood governments? What about signs and signals, insults and favors, life and death, borders that change daily?  What about music (music??)

How many textbooks have you read, that deal with gang territory economics?

The September issue of Chicago Magazine published an extensive article titled, “DISPATCHES FROM THE RAP WARS” by BY Forrest Stuart| AS TOLD TO Elly Fishman. Here are a few excerpts from that long piece:

I pulled up a map of Chicago on my tablet and pointed to random intersections. No matter what corner, even miles from their homes, these (gang) kids had an intimate knowledge of gang activity there.

One boy told me, “If I walk down Cottage Grove, I know that in some places I need to keep my head on a swivel. In others, I can relax my guard.”

And I’m thinking, There is no real reason this kid should know this much about gang presence on the South Side, because he’s from another side of town.

It wasn’t just territory they had down cold. They were up on the latest of basically every gang war in the city.

Would that the American voter knew as much about the territorial conflicts going on all over the world, as the kids know about the numerous conflicts among the various gang territories in Chicago.

I asked these kids how the hell they knew all this. They looked at me like I was an idiot. “Music,” they said.

There are hundreds of gangs in Chicago these days, a splintering that occurred in the wake of the collapse of the traditional “supergangs” like the Black Disciples and Vice Lords in the ’90s.

They operate as block-level factions, making the city a complicated patchwork of warring territories.

In a relatively recent phenomenon, many of these gangs produce drill music—a Chicago-born, low-fi version of gangsta rap, full of hyperviolent boasts and taunts.

Drill music is their form of communication, their language, their not-so-United Nations  speeches.

These kids can quickly figure out whose territory they are in. If they are walking through a neighborhood and hear a certain kind of drill coming from a passing car or a phone speaker, they know that corner belongs to the gang Diddy Grove.

If they’re in Diddy Grove territory and notice songs by O-Block, that tells them Diddy Grove and O-Block are likely cliqued up.

That is how treaties are announced.

Zebo (a gang-banger) told me how drill perpetuates gang wars, how it’s an engine of both truces and feuds.

He kept returning to a refrain, one I would hear many times during my field research: ‘This is not just music. It’s not just a game. This shit is for real.”

(Gangs make) three kinds of videos. In one, they talk about nameless, faceless rivals, or haters.

In another, they specifically target a rival gang with lyrics like “So-and-so’s a bitch” or “So-and-so’s a snitch.”

And then there’s an in-between kind, which to an outsider sounds like generic disses but is actually very targeted, with the rapper flashing a rival gang’s hand signs upside down.

That is how wars are declared between “nations.”

It’s surprising how much strategy goes into the making and posting of these videos on YouTube and SoundCloud.

Gang members are constantly considering how to get the most views.  The thinking is that if a video pulls enough, record labels will start calling.

Sometimes the guys will record a video but wait to release it until a rival gang member—preferably one they’ve called out—is shot, so that it seems like (the gang) is taking credit.

It’s all about convincing viewers that the gang really does the violent stuff that they rap about—and often they do.

When the U.S., Russia, China, North Korea, et al parade their military hardware, it’s to  convince viewers they really are capable of “violent stuff.”

Each rapper in the gang has one or two “shooters.” These are the members who make good on the threats the rappers dish out in their lyrics and on social media.

Visualize the U.S. and Russian bombers attacking ISIS over Syria.

Their model is inspired by the local patron saint of drill rap, Chief Keef, who successfully leveraged the persona of a black superpredator.

The more he portrayed himself as a reckless, gun-toting, ruthless murderer, the more attention he got.

Eventually, Interscope Records signed him to a $6 million deal and off he went to Los Angeles. Hardly a day goes by without someone from CBE mentioning Keef.

That’s Economics 101 in Chicago gangdom. You won’t read about it in the textbooks or hear about it in college Economics or Marketing courses.

As one of the rappers would always say, “You know, white people, Mexicans, bitches, those people don’t live the life, but they love hearing about it. People want the Chiraq stuff. They want a superthug ghetto man, and I’m giving that to them. I’m just playing my role.”

That role means being at the nucleus of the gang.  The rappers are designated as the ticket out of poverty. It becomes the responsibility of the rest of the members to support and protect them.

More Economics 101 in gangdom. The rappers have shooters to protect them, while they try to earn money for the gang.

(In the gang), there are about 30 members total. Some act as producers or cameramen. Two, for example, basically serve as the tech department. They do stuff like steal the local school’s Wi-Fi password.

Visualize our NSA decrypting foreign codes, Emails, texts, and the Chinese and Russian hackers doing the same.

(A.J., a gang member) said, “I’m going to show you why I do this.” So he went on Facebook, Snapchat, and Twitter and wrote, “I’m on FT for the next 20 minutes” and gave his phone number.

FaceTime calls immediately started coming in from across the United States and Canada—male and female, ages 12 to 40, white, black, Hispanic—all like, “Oh my God, I love you. Your music is so great.”

He got so many calls that his phone ended up crashing. These are not things your average kid experiences.

A.J. turned to me and said, “I do this when I’m feeling shitty, or when I’m broke, or when I’m bored.”

Every few calls, a woman A.J. thought was attractive would pop up on FaceTime, and he would compliment the young lady, ask to see more of her, then goad her to take off a piece of clothing. Women would wind up getting undressed for him.

The guys have a term for these kinds of fans: cloutheads. The more popular you are as a drill rapper, the more clout you accumulate.

The more clout you have, the more cloutheads—easily exploitable groupies—you have. A.J. has a lot of cloutheads.

And he won’t just ask them to take off their clothes; he’ll ask them for money, meals, new iPhones—almost always in exchange for the promise of sex.

Since most of the guys in (A.J.’s gang) are really bad at dealing drugs, the gang relies on the rappers to bring in cash this way. The whole exchange between rappers and cloutheads is a bizarre modern twist on sex work.

You marketing majors probably have not explored this “medium.”

Junior, an 18-year-old shooter had been arrested for armed robbery—one way shooters make money is by “staining,” or stealing from people or stores in nearby neighborhoods—and had just come off house arrest.

He was broke, his mom had disowned him, and he was on the verge of becoming homeless.

He decided to become a rapper. He’d seen how those guys were excused from the actual violence, and wanted a legal hustle for himself.

About eight months after recording his first tracks, Junior was walking home when he was shot in the shoulder

When I visited Junior the next day, he was in an incredibly jovial mood. He was like, “Man, Forrest, I’m on! I’ve got clout!”

He was tracking his latest rap video on YouTube, and the daily views had tripled. Junior was so excited about having gotten shot and kept talking about how he was finally going to make it as a rapper. And he was right.

That was essentially the moment when his gang accepted him in that role. Another member of the gang stepped up to be his shooter, and a bevy of women started following him around.

Today, he’s a central figure in CBE.

Your high school or college advisor probably did not spell out that route to economic success.

One night Junior received a Facebook message from a 20-something white guy in Beverly Hills named Chad.

Chad wanted to pay Junior to record a verse for his album. To prove he was serious, he wired Junior $800 and uploaded a song that was complete except for Junior’s verse.

At various times during the week, Chad would invite his friends over to his house for informal Q&A sessions with Junior. “How does the drug economy work?” they’d ask. “What do you do on the corner?” “How do you deal with cops?” “Where do you get your guns?” 

Five days in, Chad and Junior had some sort of blowup, and Junior had to get out of town fast. In the end, he walked away with about $2,000 worth of new clothing, shoes, sunglasses, jewelry, and weed. He never did get around to recording that track.

The article goes into much more detail about the realities, complexities, and subtleties of gang life, none of which wind up in the economics, marketing, or general business books.

Yes, Supply and Demand, Risk and Reward, even recessions and depressions still apply. But it’s a lost economy, an invisible economy, though a big economy.

And “it’s not just a game. This shit is for real.”

Rodger Malcolm Mitchell
Monetary Sovereignty

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•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.

•The more federal budgets are cut and taxes increased, the weaker an economy becomes..

•No nation can tax itself into prosperity, nor grow without money growth.

•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)

•Deficit spending grows the supply of money

•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.

•The limit to non-federal deficit spending is the ability to borrow.

•Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

•The single most important problem in economics is the Gap between rich and the rest.

•Austerity is the government’s method for widening the Gap between rich and poor.

•Until the 99% understand the need for federal deficits, the upper 1% will rule.

•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY

Is Moody’s a criminal enterprise or just plain ignorant? Monday, Aug 22 2016 

I’ve written about Moody’s before. You may know Moody’s as one of the “Big Three” credit rating agencies that gave high grades to worthless securities, and helped start the Great Recession.

You also may know standard practice for rating agencies is to be paid by the businesses they rate, a clear conflict of interest and an open invitation to criminality.

And, if you are a regular reader of this site, you know that unlike cities, counties, states, euro nations, businesses, you, and me (all of which are monetarily NON-sovereign), a Monetarily Sovereign (MS) nation never can be forced into bankruptcy. Never.

A Monetarily Sovereign nation can pay any bill of any size at any time, simply by creating its money. For MS governments, ability to pay never is an issue. The only issue is willingness to pay. 

Thus, an MS credit rating cannot legitimately be based on the amount of indebtedness. If the MS nation is willing, it can pay any bill.

An MS nation, even with minimal debt, could be given a low credit rating, if it has a history of refusing to pay its bills.  But, an MS nation, even one with huge debt, should receive a high credit rating if it always pays its bills.

To summarize, the “Big Three” credit agencies have a history of mis-rating securities, being paid by the subjects of their ratings and, as you will see, probably not recognizing the fundamental differences between Monetary Sovereignty and monetary non-sovereignty.

Reader “elizabethharris001” brought to our attention, an article in the Jerusalem Post titled, “Moody’s warns Israel new budget could downgrade credit rating.” The article said, in part:

Credit rating agency Moody’s on Thursday warned that the 2017- 2018 state budget proposal could be a step toward undermining Israel’s solid A1 credit rating.

Israel has a “solid A1 credit rating,” because it always pays its bills, in full and on time.

Finance Minister Moshe Kahlon swept aside legal limits on spending increases and the deficit target in his budget proposal, which accommodated the many, expensive promises made in coalition deals.

The plan is expected to raise Israel’s debt-to-Gross Domestic Product (GDP) ratio, which fell below 65 percent in the past year.

This will have no effect on Israel’s ability or willingness to continue paying its bills, in full and on time.

“The rating or outlook could come under downward pressure if the commitment to fiscal discipline over the medium term was to wane,” the agency wrote in its annual Credit Analysis of Israel’s government.

“With the improvement in debt-to-GDP having already slowed compared to the mid-2000s, renewed fiscal easing puts at risk Israel’s credibility for budget discipline,” the report said.

When Moody’s mentions “budget discipline,” it is talking about austerity, the same process that has destroyed the economies of the euro nations — the same process that is responsible for every depression in U.S. history, as well as most recessions.

The Moody’s report was not all gloomy, however. It also praised Israel’s dynamic economy and its relatively strong performance when compared to many other advanced countries, still struggling in the aftermath of the 2008 global financial crisis.

Israel has a “strong performance,” but its debt above 65% of GDP warrants a reduction in credit rating? Think about the “logic” of that.

By confusing (intentionally??) MS nation finances with business finances (where large debt can impact ability to pay) Moody’s claims Israel’s debt requires a reduced credit rating.

Utterly false and misleading — demonstrating an ignorance bordering on criminal.  Is Moody’s even consistent in its false evaluations?

From Trading Economics:
Government Debt to GDP in Japan averaged 123.60 percent from 1980 until 2015, reaching an all time high of 229.20 percent in 2015.

Moody’s credit rating for Japan was last set at A1 with stable outlook.

Before we continue, Moody’s credit ratings, from top to bottom are: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, and lower.

Japan’s 229 and Israel’s 65 apparently warrant the same rating, and neither Japan nor Israel has been given Moody’s highest rating, despite the fact that both are Monetarily Sovereign and can and do pay all their bills on time.

Let’s look at a few other countries, courtesy of Trading Economics:

Canada: Debt to GDP of 91.50; Moody’s credit rating: Aaa

Canada, an MS nation with a much higher Debt/GDP ratio than Israel’s, and no better record of paying its bills, has an Aaa rating, four levels higher than Isreal’s current rating (which is about to be lowered).

As if that weren’t strange enough, let’s look at really crazy:

“Austria’s public debt reached a new peak of 86.2 percent of GDP in 2015 compared to 84.3 percent in 2014.”  Moody’s credit rating: Aaa, the highest rating.

So Austria, with a “worse” Debt-to-GDP ratio that Israel’s, and no better record of paying its bills, has a higher credit rating — and Austria, unlike Israel, is monetarily NON-sovereign.

Austria is part of the eurozone; it uses the euro, not it own sovereign currency. Austria does not have the unlimited ability to pay its bills. Unlike Israel, Austria could go bankrupt. But it has Moody’s highest rating.

And then here’s another eurozone nation, Germany:

“Germany recorded a Government Debt to GDP of 71.20 percent in 2015.” Moody’s credit rating: Aaa.

Germany too, is monetarily non-sovereign, and could be unable to pay its bills, but has Moody’s highest rating.

Finally, we come to the United States:

The United States recorded a Government Debt to GDP of 104.17 percent in 2015. Government Debt to GDP.  The United States averaged 61.94 percent from 1940 until 2015, reaching an all time high of 121.70 percent in 1946 and a record low of 31.70 percent in 1974.

Moody’s rating: Aaa

I call your attention to that 31.70 lowest Debt/GDP ratio. It comes right before a recession.

Monetary Sovereignty

In fact, there is an uncanny relationship between debt reduction and recessions. Most recessions follow a period of federal debt reduction.

And then there’s this inconvenient fact:

U.S. depressions tend to come on the heels of federal surpluses.

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.

Finally, while Gross Domestic Product is a measure comprising 12 months, Federal Debt is a historical measure comprising the entire life of the United States. In short is the classic apples/oranges, meaningless ratio.

Bottom line: Moody’s (as well as the other two major rating agencies, S&P and Fitch) either do not understand how Monetary Sovereignty works or are paid not to understand.

They evaluate nations as though the nations were monetarily non-sovereign businesses. The rating agencies don’t reveal the basic fact that an MS nation cannot be forced into bankruptcy. It can pay its bills forever, despite its Debt/GDP ratio.

Any credit rating is based on just two factors: Ability and willingness to pay bills.

Because an MS nation has the unlimited ability to pay, Debt/GDP has no meaning when evaluating credit. No matter what its Debt/GDP ratio, any nation may or may not be willing to pay its bills.

The Big Lie states: “Federal taxes fund federal spending.” But for an MS nation, spending is funded by money creation, not by taxes nor by borrowing.

The Big Lie is a carefully crafted story. It is designed by the very rich to convince everyone there isn’t enough money available to narrow the Gap between the rich and the rest.

The Big Lie forces countries to cut the spending that would benefit the lower and middle classes. It caused our too-slow growth following the “Great Recession.” It is the method by which the very rich retain power over the world.

The credit agencies are willing, and well-paid, accomplices to the Big Lie.

Is it ignorance or paid criminality? You decide.

Rodger Malcolm Mitchell
Monetary Sovereignty

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Ten Steps to Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be an good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

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

MONETARY SOVEREIGNTY

Why a finance professor should not teach economics Saturday, Nov 28 2015 

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

Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..

Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.

•The single most important problem in economics is the Gap between rich and poor.
•Austerity is the government’s method for widening
the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

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Noah Smith is an assistant professor of finance at Stony Brook University and a freelance writer for a number of finance and business publications.

Professor Smith wrote an article titled,  Japan’s Debt Trap Won’t Fix Itself in which he demonstrates his not understanding the differences between a Monetarily Sovereign government (Japan, the U.S., Canada et al) and a monetarily non-sovereign entity (Illinois, Chicago, businesses, people).

Perhaps because he teaches finance, he may think all finance is the same, so he seems to apply monetarily non-sovereign restrictions to Monetarily Sovereign governments.

Here are some examples:

With low unemployment and high labor force participation, Japan has essentially no idle resources. The scope for boosting the economy with fiscal stimulus or easy money is almost nil.

Its available resource is the yen. Japan, being Monetarily Sovereign, has the unlimited ability to create yen, with which it can buy unlimited resources.

The “scope for boosting the economy” via monetary stimulus is unlimited.

Japan continues to run an enormous budget deficit every year. Things are looking somewhat better for 2015. A hike in the consumption tax in 2014 has swelled revenues.

Here, Professor Smith demonstrates complete misunderstanding of national finances. He thinks “swelled revenues” (i.e. reduced revenues coming into the economy) in some unknown way, will benefit the economy.

No, Professor Smith, sending fewer yen into the Japanese economy, will not help grow the Japanese economy.

Government coffers have also been boosted by increased profits at Japanese companies — which is then subject to the country’s high corporate tax rate. As a result, the primary deficit is projected to be only about 3.3 percent in 2015.

A Monetarily Sovereign government, unlike a monetarily non-sovereign entity, has no “coffers.” It creates its own sovereign money ad hoc, by spending.

And that “high corporate tax rate” and low deficit is guaranteed to depress the economy.

In the long run, any deficit that stays higher than the rate of nominal GDP growth is unsustainable.

Why is it “unsustainable”? No one knows. Professor Smith doesn’t say. I only can surmise that he thinks the formula for GDP (GDP = Federal Spending + Non-federal Spending + Net Exports) is wrong.

Bank of Japan has not managed to increase core inflation to the 2 percent target despite Herculean efforts.

Even if interest rates stay at zero forever, borrowing 3.3 percent of GDP every year is just too much. And if interest rates rise, deficits would explode.

The government, of course, knows this, and has pledged to cut the primary deficit to 1 percent by 2018 and to zero by 2020.

Inflation follows this formula: Value = Demand/Supply.  Inflation is a reduction in Value.

The Bank of Japan’s “Herculean efforts” consist of cutting interest rates, which only reduce Demand.  But the reason inflation is too low (according to the BOJ) is that Supply is too low.

So what is the government’s “solution” to low Supply? Cut the deficit, which will cut Supply, further.  Is it any wonder Japan is in trouble?

The Ministry of Finance, full of sober-minded bureaucrats, projects that under more realistic growth assumptions, the primary deficit will shrink only to 2.2 percent. Even that improvement would require tax hikes, spending cuts or some combination of the two.

So the Japanese government will try to stimulate inflation by cutting the Supply of yen.  Hmmm . . . What next? Stimulate obesity by cutting the supply of food? Warm the house by turning down the heat?

A primary deficit of 2.2 percent would be at the very edge of long-term sustainability. If we assume a 1 percent real potential growth rate and 1.5 percent inflation, then a 2.2 percent deficit will be just barely under the maximum sustainable level of 2.5 percent.

If you understand his “sustainability” formula, please explain it to me. And while you’re at it, please explain why a deficit of 2.5% is the maximum sustainable level. Will the Japanese government run short of its own sovereign currency?

The article continues on and on, explaining the unexplainable: Why tax increases benefit the economy while deficits are “unsustainable.” It’s utter nonsense, of course, and unfortunately, a rather common nonsense.

Professor Smith can be forgiven his ignorance about economics. We all are ignorant about many things, and he probably should not be expected to understand Monetary Sovereignty if, as a finance professor, he teaches monetarily non-sovereign finance every day.

But the notion that leaders of major countries don’t understand Monetary Sovereignty is beyond belief, and in fact, I don’t believe it.

Increased deficit spending, especially on benefits for the middle and lower classes, narrows the Gap between the rich and the rest of us. The Gap is what makes them rich; without the Gap, no one would be rich, and the wider the Gap, the richer they are.

It is a fact of life, that the rich run every nation and always have. Because most of the rich want the Gap to widen, they pay the opinion leaders — the politicians, the university professors and the media — to teach the public that federal finances are like personal finances, where deficit spending causes debt and large debt is “unsustainable.”

Whether Finance Professor Smith really believes these things, or whether he has been paid to disseminate the “Big Lie,” is impossible to say.

But add him to the list of those spreading the rich .1%’s false narratives about federal financing.

If you wish to drop him a note to tell him so, his Email is: Noah.Smith@stonybrook.edu

Rodger Malcolm Mitchell
Monetary Sovereignty

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Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually Click here
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
——————————————————————————————————————————————

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

THE RECESSION CLOCK
Monetary Sovereignty

Vertical gray bars mark recessions. Recessions come after the blue line drops below zero and when deficit growth declines.

As the federal deficit growth lines drop, we approach recessions, each of which has been cured only when the growth lines rose.

Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

#MONETARYSOVEREIGNTY

–Message from the rich: The U.S. Treasury is running short of dollars Monday, Aug 31 2015 

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

Mitchell’s laws:
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
•The single most important problem in economics is
the Gap between rich and poor.
•Austerity is the government’s method for widening
the Gap between rich and poor.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

===================================================================================================================================================================================================================================================================================

Here are a few shameless quotes from this month’s Congressional Budget Office bulletin, as written by America’s richest.

As of March 15 (2015), the Treasury has (had) no room to borrow.

The debt limit—commonly referred to as the debt ceiling—is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies.

That amount is set by law and has been increased over the years in order to finance the government’s operations.

The statement is mathematically illogical and factually wrong. Those of you who already understand Monetary Sovereignty are aware the federal debt does not, and cannot, finance the government’s operations.

First the mathematics. Federal debt is the total of T-securities — securities bought by non-government entities and by government agencies. The “debt” is nothing more than bank deposits in T-security accounts at the Federal Reserve Bank.

From where do these buyers obtain the dollars with which to buy T-securities and make these bank deposits?

All dollars come from two sources: Federal deficit spending and bank lending.

But where do the banks obtain the dollars to lend? Yes, they create most, but they must begin with “reserves.” These reserves come from the public in the form of deposits, and from the Federal Reserve Bank.

From where does the public obtain dollars to make deposits?

Bottom line: The initial source of all dollars is the Federal government. It is the federal government that, back in the 1770’s, created the first dollars from thin air. And it is the federal government that continues to create dollars from thin air, simply by paying bills.

Were it not for federal deficit spending, U.S. dollars could not exist.

The government is able to deficit spend endlessly because it is Monetarily Sovereign, i.e. sovereign over its own currency, the U.S. dollar. Being sovereign, the government can do anything it wishes with dollars.

It can create dollars endlessly (via deficit spending). It can destroy dollars (via taxing). It can change the value of dollars (via interest rate control).

Being Monetarily Sovereign, the federal government never needs to ask anyone for dollars — not you, not me, not China.

Contrary to the CBO’s implications, the U.S. Treasury never can run short of dollars unless Congress wills it.

Although dollar bills technically are not in themselves dollars (They are titles to dollars, much like car titles and house titles), the federal government can print all the dollar bills is wishes.

Being Monetarily Sovereign, the federal government makes the rules. If it wished, the federal government could print a trillion, trillion $100 bills and distribute them tomorrow. These bills would be legal tender for all debts. In short, you could use them the same way you use the dollars in your wallet.

Yes, that could cause an inflation, and yes, that is not how dollars are created. But the point is, the federal government cannot run short of its own sovereign currency — unless Congress and the President want that to happen.

The fact that Congress is able to increase the debt ceiling every year is proof there is no limit to the government’s ability to create dollars.

If the federal government did not create dollars, there would be no dollars for banks to lend and there would be no dollars with which to purchase T-securities (aka federal “debt”).

How does the federal government create dollars by paying bills?

To pay a bill, the government sends checks and wires to the creditors’ banks. These checks and wires are not money; they are instructions, telling the banks to increase the balances in the creditors’ checking accounts.

The instant the banks obey those instructions, and credit the accounts, dollars are created. The money supply (M1 and M2) increases. The Treasury creates dollars by sending instructions to banks.

The Congressional Budget Office projects that if the debt limit remains unchanged, the Treasury will run out of cash between mid-November and early December.

This sentence more properly should read, “If Congress prevents the Treasury from creating dollars, the Treasury will run out of cash between mid-November and early December.

On March 16, the debt limit was reset to $18.113 trillion to match the amount of outstanding debt.

Translation: Congress decided it doesn’t want the Treasury to create any more money. The point is not that the Treasury is unable to create all the money it wishes. The point is simply that Congress, at the behest of rich donors, doesn’t want the Treasury to create money to pay for benefits to the middle class and the poor (the “99%”).

This is not a financial decision. It is a political decision. Congress essentially is stamping its feet and saying, “I’ll take my ball and go home unless you give me my way.”

The annual battle over the debt ceiling is an extortion game, in which one party threatens to shut down the government unless certain laws are passed. And these laws may have little to nothing to do with financing.

Whenever you read that certain federal spending is “unaffordable” or “unsustainable,” you are witnessing the Big Lie.

The purpose of the the Big Lie: To fool you into believing certain benefits must be cut — i.e. Social Security, Medicare, Medicaid, poverty aids, education aids, etc.

It is the wealthy political contributors who want your benefits cut.

What Makes Up the Debt Subject to Limit?
Debt subject to the statutory limit consists of two main components: debt held by the public and debt held by government accounts.

Get it? Congress has limited the amount of T-securities it can sell to itself!

Congress includes under the misleading term “debt,” the amount of money the government has “borrowed” from itself. The purpose: To make the “debt” look more ominous.

If your left hand borrowed $100 from your right hand, would you have any difficulty paying the debt? Of course not. But Congress wants you to believe internal debt is some sort of threat or burden.

Of the $18.1 trillion in outstanding debt subject to limit, $13.1 trillion was held by the public and $5.0 trillion was held by government accounts as of July 31, 2015.

So, not only is the misnamed “debt” a phony issue, but the $18.1 trillion debt is a phony figure.

If the debt limit is not increased, the Treasury will not be authorized to issue additional debt that increases the amount outstanding.

That restriction would ultimately lead to delays of payments for government activities, a default on the government’s debt obligations, or both.

By CBO’s estimate, the Treasury would most likely be able to continue borrowing and have sufficient cash to make its usual payments through mid-November or early December without an increase in the debt limit.

Translation: If Congress fails to increase the “debt” ceiling, that is tantamount to Congress voting to cut Social Security and Medicare payments, military salaries, all other federal salaries and all other payments.

The “debt ceiling” is Congress’s method for cutting benefits to the 99%, without leaving any fingerprints.

Your senators and representatives fear being blamed for benefit cuts, so they pretend the government can’t afford these benefits. The “debt ceiling” provides a handy, no-blame excuse.

Why would Congress do that?

Because that is what the rich of America want.

The rich are rich only because of the Gap between them and the rest of us.

If there were no Gap, i.e. if everyone had the same amount of money, no one would be rich. And the wider the Gap, the richer the rich are.

More than money, the rich want relative power. An easy way for the rich to increase their relative power is to decrease the wealth of the 99% — i.e. to take away your money.

So the rich pay Congress (via campaign contributions) to cut Social Security, cut Medicare, cut Medicaid, cut federal payrolls and cut all other federal benefits to the 99%, under the pretense these benefits are “unaffordable” and “unsustainable.”

They call it “fiscal prudence.”

And they call T-securities “debt” rather than more properly “assets of the economy,” (for that is exactly what T-securities are: Assets of the economy.)

The rich know you always want to cut “debt,” but never would want to cut “assets of the economy.”

So it all is a gigantic con game, with the CBO (being an agency ruled by Congress) as a player.

You are supposed to believe that federal “debt,” (even “debt” owed to itself), is imprudent and must be cut, when in fact, cutting the debt takes dollars out of your pocket and leads to recessions and depressions, while it widens the Gap between the rich and you.

And in a great feat of cynicism and irony, the politicians pretend your children and grandchildren will have to pay the debt, when in fact, your children and grandchildren will pay for the lack of federal deficit spending.

Your children and grandchildren will be punished by needless reductions federal deficit spending, all because the rich instruct Congress to tell you the Treasury is running short of its own sovereign currency, the dollar.

Rodger Malcolm Mitchell
Monetary Sovereignty

===================================================================================
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)

10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)

The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
——————————————————————————————————————————————

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.

THE RECESSION CLOCK
Monetary Sovereignty

Monetary Sovereignty

Vertical gray bars mark recessions.

As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.

#MONETARYSOVEREIGNTY

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