–How bleeding the economy grows it, and why sick, old and poor people are a drag

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 breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Perhaps it is my perverse sense of humor that forces me repeatedly to ask debt-hawks the following question (which they never answer):

Read these two important equations in economics:

Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports

Federal Deficits – Net Imports = Net Private Savings

Based on these equations, how do federal tax increases and/or spending cuts (aka deficit reduction) reduce unemployment or grow the economy?

The clear answer is, “They don’t.” But, consider the Committee for a Responsible Budget, whose president is Maya MacGuineas, and who continually demands the deficit reduction super committee to “go big” — i.e. cut $4 trillion, rather than “just” $1 trillion from the federal deficit.

Maya MacGuineas on “Debt Reduction Done Right”
November 17, 2011

Putting in place a deficit reduction plan to bring the debt back down to around 60 or 65 percent of GDP over a decade creates the opportunity to grow the economy in a number of ways that will not be achieved either through one-off stimulus measures or incremental spending cuts.

Those who understand Monetary Sovereignty are aware the debt/GDP fraction is meaningless. It measures nothing and provides zero information regarding the health of an economy. Go to http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt for a list of countries and their debt/GDP. See if you can see any pattern of economic health by debt/GDP.

Ms. MacGuineas begins her defense of debt reduction with a meaningless goal. But it gets better:

First, it would take off the table the risk of a fiscal crisis. I know that only a few years ago, comparing the U.S. to Greece seemed inflammatory and absurd. However, recent events – including the well-deserved downgrade and the paralysis of our political system – now show the possibility of a full-blown fiscal crisis to be not nearly as remote as we would have liked to believe. Only by charting a new fiscal course will we remove that risk.

Yes, comparing a Monetarily Sovereign U.S. with a monetarily non-sovereign Greece is inflammatory and absurd, almost as inflammatory and absurd as paying any attention whatsoever to S&P ratings. You remember S&P, don’t you? They are the ones who gave AAA ratings to worthless mortgage schemes and to monetarily non-sovereign France, while lowering the U.S. rating, and all the while, accepting money from the very companies they rate.

And to which “fiscal crisis” does Ms. MacGuineas refer? Does she mean the U.S. being unable to create enough of its own sovereign currency to pay its bills? Or does she mean the fiscal crisis caused by debt ceilings along with forced spending reductions and tax increases, i.e. deficit reduction?

Second, implementing fiscal reforms that are comprehensive in nature, rather than incremental, offers the opportunity to restructure our budget and tax systems in ways to promote growth. The key here is switching from a consumption-oriented to an investment-oriented budget.

Let’s parse this gobbledegook: “fiscal reforms” is her synonym for “cut the deficit” and “comprehensive” means “big.” So she is saying big deficit cuts are better than small budget cuts. Why? Because they “promote growth.” How? She never says.

Given those two undeniable equations in economics, deficit cuts simply cannot promote economic growth. But Ms. Macguineas and her group just know in their guts that deficits are bad, cutting them is good, and if its good, it must promote growth, and the more cuts, the more growth.

Anyway, she’s paid to believe that. Here are other comments she makes:

Our debt as a share of the economy is higher than it has ever been in the post-war period, and we are on track to continue adding to it forever.

I certainly hope so. If the economy is to grow forever, the money supply must grow forever, and if the government continues to be required by law, to create T-securities in the same amount as the deficit, the debt must grow forever.

By the end of the decade we could easily be paying interest payments of nearly a trillion dollars per year, which can be described as nothing other than a tremendous waste.

Or, more correctly, those interest payments can be described as a tremendous economic stimulus.

We know not only is the debt already probably a drag on the economy, but that at some point, unless changes are made, it will lead to a fiscal crisis.

“Probably,” Ms. Macguineas? “At some point?” Do I detect a bit of uncertainty there? Or just lack of evidence?

High debt levels harm the economy by diverting capital away from productive investments.

If federal debt is the legal result of federal deficits, which add to the money supply, how does this “divert capital away” from anything?

Higher interest payments in the budget squeeze out other priorities – whether they are other spending or lower taxes – and leave the budget highly vulnerable to increases in interest rates.

Only if there is a foolish debt ceiling, which Ms. Macguineas favors. Remove the debt ceiling and nothing gets squeezed out.

This inequity is exacerbated by the fact that the bulk of our government spending goes to consumption — much of it for the elderly — rather than investments, which would at least have the potential to boost longer-term growth.

And there you have the fundamental Tea Party, right wing mantra: Cut Social Security; cut Medicare; cut welfare, cut aid to the poor, cut all those benefits for “consumption,” i.e. payments to needy people.

To gain further understanding of what economic ignorance can produce, I recommend you read the full text of her paper, which you can find at http://www.riponsociety.org/forum114mm.htm

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

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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. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings

MONETARY SOVEREIGNTY

–You damn fools

Washington Post: By Editorial, Published: November 16

NO MATTER ONE’S views about Occupy Wall Street and its imitative protests across the country, it’s hard to quarrel with the principles that propelled New York Mayor Michael R. Bloomberg (I) to clear Lower Manhattan’s Zuccotti Park. From the start, Mr. Bloomberg expressed a commitment to the First Amendment rights of protesters, but he also stressed the importance of guaranteeing public health and safety. When those two goals clashed, the mayor was right to take action.

In an early-morning raid Tuesday, New York police swooped down on the park, clearing it of protesters, as well as the tents, generators and other encampment paraphernalia that had occupied it for two months. To be sure, there were incidents, such as the banishment and arrest of reporters trying to cover the event, that should have been avoided. But police largely acted with restraint, and the well-planned operation was without the violence that has accompanied similar actions in other cities. More important, contrary to the claims of critics who likened it to crackdowns in despotic countries, the effort was not undertaken to end the protest or to squelch its message about the concentration of economic and political power. Demonstrators were allowed back in the park but without tents and other gear needed for an indefinite stay.

Utter bullsh*t. The billionaire mayor of a city that stores all its garbage on the curb in front of its stores, suddenly becomes oh-so-concerned about the public health and safety in one teeny, little park, that he sends in half the NY police force (at 1:00 in the morning, mind you), not only to clear the park, but to destroy all the possessions of the protesters. Yes, that billionaire mayor is committed to First Amendment rights. Sure, he is.

And then there was “the arrest and banishment of reporters” by that billionaire mayor who is committed to First Amendment rights. Why banish reporters if you’re proud of what you’re doing? Anyone who believes what the bought-and-paid-for editor of the above article says, is a damn fool.

The #OWS protests are against the gap between rich and poor. Is that bad? What is the establishment response? To lift the poor? No way. The response is to squelch the protests. The response is to sic the cops on them and to clear the parks with bullhorns, batons, beatings and tear gas. The response is to destroy all the protesters belongings. Hey, “Let ‘em eat cake,” right Mr. billionaire mayor?

I’ve not heard one politician propose a plan to help improve the lives of the middle class and the poor. All I hear from the politicians is how we need to cut Medicare, cut Social Security, cut unemployment payments, cut federal employment, cut the military – cut, cut, cut – cut all the things that help support the middle class and the poor —- and of course, get rid of those noisy, unkempt protesters.

And support the banks and arrest protesters, but please don’t arrest anyone for bank fraud.

You damn fools.

The newspapers print, and the TV talking heads rant, unimaginably ignorant editorials about how federal debt should be reduced, without bothering to answer the key question: How will tax increases and/or spending decreases help reduce unemployment, lift the lives of the poor and middle classes, and grow the economy. THEY WON’T.

Not one politician, media prostitute or cowardly economist has any understanding of a fundamental equation in economics: Gross Domestic Product = Federal spending + private consumption + investment + net exports –– a formula demonstrating that reductions in federal spending must reduce GDP.

You damn fools.

So Congress and the President created a “super committee” to reduce the federal deficit (i.e. to increase the gap), and none of them has any understanding of another fundamental equation in economics: Federal Deficits – Net Imports = Net Private Savings, which tells us that reducing deficits must reduce savings.

You damn fools

Congress and the President should have created a “super committee” to determine how to lift the lives of the middle class and the poor. It isn’t all that hard. Here’s where to begin:

1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America

Begin to institute #1-#9 today, in the order shown, and if/when excessive inflation starts to occur, institute the first inflation-fighting program the Fed always uses: Raise interest rates. If that doesn’t do enough, begin to cut deficit spending.

“Oh, no,” the rich and the media and the economists say. “That could increase the deficit (meaning, increase the money supply). And as everyone knows, the deficit is bad. And anyway, we’re much more afraid of a distant and controllable inflation that could reduce the value of our millions, than we are of today’s unemployment that steals the life savings of the poor and middle class. Those poor folks can muddle along, but what about us 1%?”

The problem is, no one knows exactly why the deficit is bad. But so long as “everyone says so,” it must be true. The wealthy always are right, especially for the brainless 99% who march obediently to the drum, right over the cliff.

You damn fools.

So you think the French revolution was an anomaly? And the Arab spring couldn’t happen here? And the Bolshevik revolution was just a bunch of crazy commies? And the Xinhai Revolution, what the heck was that? This is America. Our people are passive. They’ll do what their leaders tell them to do, because they have been trained to respect “law and order” (the 1%’s euphemism for “clamp down on those scruffy protesters”).

You damn fools.

I predicted this months ago, and the response is no surprise. The establishment always sides with the rich, and the lessons of past injustices are forgotten. And now I have a message for all of you in the 99%, who criticize the #OWS for camping in parks, and disrupting traffic, and making an inconvenient mess: Wake up. These young people are fighting the battle you should have fought years ago.

While you sit in front of the TV you still are paying off, in your “underwater” house near foreclosure, eating a Big Mac because it’s the best you can afford, and shaking your head at the rowdiness you see on the tube: Time to smell the roses. Those politicians you elected don’t care about you. They don’t care about your kids or grandkids.

They care only about your vote, so they give you a bunch of snake oil about federal deficits and federal debt, to distract you from the real problem which is: You are being screwed, day in and day out. And you fall for it. Ask everyone you meet about the federal deficit, and they’ll parrot like little robots: “The deficit is bad; the deficit is bad.”

The rich own the media and the economists, and now they expect you to fall in line and repeat after them: “Cut my health care; increase my taxes; cut my retirement fund; make me work longer hours; fire government workers; cheat me; beat me.”

And you’ll do it. Yes you will. How do I know? Because you’ve been doing it for years. And now you’re criticizing #OWS – the people who are putting everything on the line for you and your family — because the rich told you to, and you always, always do what you’re told.

You damn fools.

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

MONETARY SOVEREIGNTY

–How big is a dollar and how much does it weigh? Money questions you can test on your friends and neighbors.

I’ve spent years answering questions about money, trying to help people understand that money does not exist physically, and that the government has the unlimited ability to create it. So I thought it might be instructive to let you present a few questions to your friends and family, and see how they do.

Some questions may, at first glance, seem trivial. They are not. Fewer than one person in a thousand can answer all these questions. If you answer half, you are doing well.

QUESTIONS:

1. Is a dollar physically real?
2. How big is a dollar, what color is it, and how much does it weigh?
3. I read on the Internet that a dollar bill weighs about one gram. So again, how much does a dollar weigh?
4. A $20 bill also weighs about one gram. So now how much does a dollar weigh?
5. I have a bank safe deposit box. It is real. The size is 24″ x 10″ x 2″. It weighs 1,000 grams and is black. I have a checking account. Is it real? How big is my checking account? What does it weigh? What color is it?
6. If my bank burns down, how many dollars have I lost?
7. Does the federal government have a bank account?
8. How much does the federal government’s bank account weigh?
9. I take a $20 bill to my bank and say, “Please deposit this in my checking account.” Will the teller put that $20 bill into my checking account?
10. Can I look in my checking account and see that dollar bill?
11. The $20 bill I gave to the bank is dirty, so the bank sends it to the U.S. Treasury in exchange for a new one. The Treasury destroys the $20 bill. Is the U.S. now poorer by $20?
12. The Treasury prints a $20 bill to replace the one it destroyed. Is the U.S. now richer by $20?
13. Someone at the Treasury forgets to turn off the press, and it prints one million $20 bills. Is the U.S. now richer by $20 million?
14. I have one blank check left in my checkbook. It weighs about one gram. I make out the check for $1,000, payable to Mr. Smith. Is that check a thousand dollars?
15. Mr. Smith deposits my check in his checking account. Does my bank send his bank my $1,000 payment?
16. I own a $1,000 T-bill. What does the T-bill weigh? What color is it? How big is it?
17. The T-bill is in my T-bill account at the Federal Reserve Bank. I never have seen it, but I know it is there, because the Federal Reserve Bank sent me a notice. Where did the government get the T-bill to put in my account?
18. Next week, my checking account will be marked up by an automatic Social Security payment for $1,300. How did that happen?
19. Who instructed my bank to mark up my account?
20. Why did my bank obey?
21. Every year, the U.S. spends, borrows and taxes trillions of dollars. Where did those dollars originally come from?
22. Who created them?
23. How were they created?
24. How are dollars destroyed
25. You pay your federal taxes using five hundred dollars cash. What does the federal government do with your dollars?
26. How is the federal debt determined?
27. How is the federal deficit determined?
28. If the deficit were zero, could the government sell additional T-securities (i.e. grow the debt)?
29. If federal debt were zero, could the government deficit spend?
30. What is the difference between Monetary Sovereignty and monetary non-sovereignty?

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ANSWERS:

1. No
2. A dollar has no physical size, weight or color. It is an accounting notation.
3. Nothing. A dollar bill is not a dollar. It is a title to a dollar.
4. Also, zero
5. A checking account has no physical reality Having no physical reality, it has no size, weight or color. You never can see it, feel it, smell it, taste it or hear it.
6. $0. Dollars, having no physical reality, cannot burn
7. Yes, many.
8. 0
9. No.
10. No.
11. No.
12. No. Dollar bills are not dollars. They are titles to dollars
13. No.
14. No. It is a set of instructions to his bank and yours.
15. No. His bank marks up his checking account by $1,000 and instructs my bank to mark down my checking account by $1,000. Nothing is sent, because dollars, not being physical, cannot be sent.
16. No color, no size, no weight. Like dollars, a T-bill does not exist, physically. It is just an accounting notation
17. The government didn’t “get” the T-bill, and it didn’t “put” a T-bill in your account. It just instructed the Federal Reserve Bank to mark up your T-bill account, which it can do endlessly.
18. The government sent instructions to your bank to mark up your account. There is no limit to the government’s ability to send instructions
19. A government computer
20. The law requires banks to obey government instructions
21. Federal deficit spending originally created all dollars. Today, dollars also are created by various types of lending
22. The Treasury, via spending instructions from Congress
23. The checking accounts of federal creditors were credited
24. Federal taxes destroy dollars. Dollars disappear from taxpayers checking accounts. They neither are held nor stored anywhere.
25. Depending on the physical condition of the dollar bills, they may be destroyed or re-used. The actual dollars, being only accounting notations, disappear from the economy and become credits in many federal balance sheets.
26. Federal debt is the total of outstanding T-securities, which regardless of federal spending, Congress may or may not decide to have issued.
27. The federal deficit is the accounting differences between federal taxes and federal spending. It is the method – the only method – by which the federal government creates dollars. If there were no deficits there would be no dollars.
28. Yes. The federal government has the power to mark up any T-bill accounts. This would increase the “debt.” Though T-bills are referred to as “debt,” the federal government does not borrow its own sovereign currency. It has no need to, since it has the unlimited power to mark up checking accounts.
29. Yes. Deficit spending merely is marking up checking accounts, an act that does not affect T-security accounts. Federal deficits and federal debt are not functionally related, though by law, the government is required to mark up T-security accounts the same net amount as it marks up checking accounts when it deficit spends.
30. A Monetarily Sovereign government has the unlimited ability to create it’s sovereign currency. A monetarily non-sovereign government has no sovereign currency.

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

**How much money does the U.S. Bureau of Printing and Engraving have?**

MONETARY SOVEREIGNTY

–Want to help America? Take on this one, very easy, empowering task.

Yes, you’re just one person, and you don’t have much influence in a nation of 300+ million people. But you still want your voice heard. So, O.K., you vote. But, look at the lousy roster of candidates! And what does one vote mean?

What to do? What to do?

Here’s a suggestion. Cut and paste the following note and send it to your Congressperson, your local newspaper and the President. If each person reading this blog will do that, Congress and the newspapers will receive thousands of letters, and you will have a meaningful voice.

And if any of your letters are printed, others will read them, and you’ll have an even bigger voice. And if you subscribe to any other blogs, and include this letter, you’ll have an even bigger voice, yet.

(Remember, when you write to newspapers, you should include your name and contact information)

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The definition of Gross Domestic Product: GDP = Federal Spending + Private Investment + Private Consumption + Net exports

So, here is a simple question you should be able to answer: Specifically, how do federal tax increases and/or spending cuts (aka debt reduction) reduce unemployment or grow the economy?

If you can’t answer, then there clearly is something wrong with the whole super committee concept.

Those who do not understand Monetary Sovereignty (https://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/) do not understand economics.

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

MONETARY SOVEREIGNTY

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