–Whither the “war savings” and Alice in Wonderland logic

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

“Everyone” knows the federal government, the debt and the deficit should be reduced. President Obama knows it. Congress knows it. The media and old-line professors know it. Your next-door neighbor knows it.

And, of course, they all are wrong. Reductions in federal spending lead to recessions and depressions, simply because a growing economy requires a growing supply of money, and the strength of a Monetarily Sovereign government is its ability to create an unending supply of its sovereign currency.

Which brings us to the following article:

How To Easily End The ‘Doc Fix’ Problem — And Why House GOP Is Opposed
Sahil Kapur, 1/16/2012

One of the items Congress extended for two months in the December payroll tax package is current Medicare payment rates to physicians, averting a steep 27.4 percent cut. Although a yearlong “doc fix” is seen as likeliest when lawmakers return to town this week and begin negotiating pay-fors, even that would merely be punting an issue in need of a permanent fix.

Over the last few months there’s been serious talk in Congress of buying out the “doc fix” issue once and for all with war savings from troop withdrawals in Iraq and Afghanistan, estimated at over half a trillion dollars.

“I absolutely would not be in favor of offsetting Overseas Contingency Operations money [for a doc fix] when it was going to end anyway,” said Rep. Phil Gingrey (R-GA), a physician, when I asked him about the idea.

And why?

That is funny money. That spending was going to go away anyway. That does not reduce the size of government,” Gingrey explained. “So you grow it on the one hand and then you rob Peter to pay Paul but Peter doesn’t have any money. It’s just a Ponzi scheme and the American people are sick of that.

Sen. Mark Kirk (R-IL), who’s also not a fan, joked that it would be like counting all the trillions the US has not spent since World War II as budgetary savings.

In Rep. Gingrey’s and Sen. Kirk’s Alice-in-Wonderland logic, if after many years, you finally pay off your $1000 per month mortgage, you really won’t have more money to spend on other things, because your mortgage expenses “were going to end anyway.”


But getting to the more fundamental problem: How will the U.S. economy be affected if the government stops spending, what Mr. Kapur claims will be “over half a trillion dollars”?

Let’s assume that figure may be misleading:

Federal Times, Marcus Weisgerber, June 24, 2011

DoD spent $162 billion — $100 billion on Afghanistan and $62 billion on Iraq — in 2010, according to budget documents. The Pentagon is projected to spend about $149 billion — $113 billion on Afghanistan and $46 billion on Iraq — in 2011.

The Pentagon’s 2012 budget proposal, sent to Capitol Hill in February, requested $118 billion — $107 billion for operations in Afghanistan and another $11 billion in Iraq. All U.S. troops are scheduled to leave Iraq by the end of 2011.

“We look at it coming down about $30 billion or $40 billion a year based on the strategy that’s played out,” Adm. Michael Mullen, chairman of the Joint Chief of Staff, told House Armed Services Committee members during a June 23 hearing.

By whatever the real figure turns out to be, the federal government will pump that much less into the economy. It will buy less equipment, less food, less clothing and fewer weapons from U.S. businesses, hurting those business’s profits and their suppliers’ profits and their suppliers’ suppliers’ profits, not only adding to unemployment, but slowing the overall economy. And the military will employ fewer soldiers, also adding to unemployment, and slowing the economy.

No matter how Congress and the President present the figures, the troop drawdown will be an anti-stimulus — especially because our leaders not only want to cut federal spending, but feel this cut is not really a cut, because “we were going to do it anyway.”

The only question remaining: How soon until the next vertical gray bar?

Monetary Sovereignty debt

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports