–Don’t amputate the federal budget; never again amputate a leg

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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The July/August issue of DISCOVER magazine contained an amazing article titled, “The Healing Power Within,” by Adam Piore. Here is the revealing subtitle:

A remarkable substance extracted from pig guts enables the body to regenerate lost muscle tissue. Next up: Pioneer Stephen Badylak is working on treatments that would allow patients to regrow entire limbs.

Think of it: “ . . . regrow entire limbs.” Science fiction? Here are a few more excerpts:

The strange sensation in his right thigh muscle began as a faint pulse. Slowly, surely it was becoming more pronounced. Some people would have thought it impossible. But Corporal Isaias Hernandez could feel his quadriceps getting stronger. The muscle was growing back. . .Generally, people never recovered from wounds like his. Flying debris had ripped off nearly 70 percent of Hernandez’s right thigh muscle . . . Remove enough of any muscle and you might as well lose the whole limb, the chances of regeneration are so remote. The body kicks into survival mode, pastes the wound over with scar tissue, and leaves you to limp along for life.

The article goes on to explain how pig tissue was inserted into the muscle, and some miracle ingredient in the tissue made the muscle regenerate. Then began a long, difficult search for exactly what substance caused this effect.

Researchers thought that rather than the pig tissue itself, the magical properties were in the structural scaffolding that holds tissue together; it’s called extracellular matrix (ECM). After a great deal of experimentation, it was found that the scaffolding actually disappears during regeneration, so something in the scaffolding must be doing the job. It turns out that components called “cryptic peptides” caused the adjacent tissue to create stem cells – those basic cells embryos use to create all the various tissues in our body, from bone to organ to blood – and these stem cells were creating the missing muscle tissue.

I can’t do the article justice in this short post. You should buy a copy of DISCOVER and read the article yourself. There is however one paragraph I must share with you:

The challenge now is replicating Hernandez’s success in other patients. The U.S. Department of Defense, which received a congressional windfall of $80 million to research regeneration medicine in 2008, is funding a team of scientists based at the University of Pittsburgh’s McGowan Institute for Regenerative Medicine to oversee an 80-patient study of ECM at five institutions. The scientists will attempt to use the material to regenerate the muscle of patients who have lost at least 40 percent of a particular muscle group, an amount so devastating to limb function that it often leads doctors to perform an amputation.

That $80 million is one of the myriad initiatives the federal government funds every year – initiatives that are invisible to the voters who wish for a smaller government – initiatives without which thousands of benefits would not accrue to the American public – initiatives without which Corporal Hernanzez would not have a working leg..

If the government were not to spend that $80 million, and the regenerative research were not done, none of us in the public would be any the wiser. We would not know muscle and limb regeneration were possible, much less happening. The loss of those $80 million seemingly would be harmless.

There is an important lesson in all this, a lesson ignored in the headlong rush to reduce government: The federal government funds thousands of activities to benefit us, activities that never would occur without federal dollars, activities we never even would know existed. So when someone says to cut federal spending in any federal department, neither they, nor anyone else, knows what actually is being cut. Your children’s and grandchildren’s lives could be adversely affected, and you would be none the wiser.

Sure there is federal waste (though even wasteful spending is economically stimulative). Sure the government can be dishonest, clumsy, overbearing and dictatorial. Sure, the federal government does things each of us dislikes (though others may like).

But on balance, we need government support for thousands upon thousands of products and services that provide our loved ones and us with a better life. We give thanks for our plentiful and clean food and pure water, our safe air travel, our roads, our insured bank deposits, our vaccines and medicines, our safe borders and the untold numbers of valuable research projects, all provided by the federal government, and all at no cost to us.

(Yes, at no cost, because federal taxes do not pay for federal spending. In a Monetarily Sovereign nation, federal government spending is free to its residents.)

There is a hidden, though tragically real, penalty for meat-cleaver cuts to the federal budget and the refusal to increase the so-called “debt ceiling.” The penalty is a meaner, crueler, shorter, less safe life for each of us. No one can point specifically to what will be lost. But this you must know: Cutting federal spending will make your life worse.

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

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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”

MONETARY SOVEREIGNTY

–The double dip recession has gone from probable to almost certainty.

The double dip recession has gone from probable to almost certainty. While no prediction in economics can be absolutely certain, this one comes pretty close, depending on what the federal government does.

Background for this prediction can be found at SUMMARY where I briefly summarize much of what is contained in the rest of the posts.

One of the tables on that page shows the relationship between federal surpluses and depressions:

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.

Each depression began with a series of federal surpluses. No surprise here. A federal surplus happens when more money flows out of the economy in the form of taxes, than flows into the economy, in the form of deficit spending. A federal surplus drains the economy of money.

A federal surplus is an economic deficit.

Semantically, we have everything backwards. The positive-sounding word, “surplus,” actually is negative for the economy, and the negative-sounding word, “deficit,” actually is positive for the economy.

Because money is the lifeblood of an economy, removing money takes the life out of the economy. As recently as 2000, President Clinton (should have) learned this lesson, when his federal surpluses (economic deficits) led to the 2001 recession, which ended only when the federal government began to pump more money into the economy (i.e. ran larger “deficits”).

Readers of this blog have seen this graph, before:

The graph compares deficit growth (aka the rate of money growth) with recessions.

The graph demonstrates that:

1. Since we went off the gold standard in 1971, we have had six recessions
2. All but one have followed periods of reduced deficit growth
3. During and immediately following each recession, the rate of money growth increased or at worst, remained level – except for the most recent recession.

Prior to the most recent recession, money growth fell, and predictably, we had a recession. Then, during the recession, deficit growth rose as the federal government pumped in stimulus money, which is what the government generally does to fight a recession.

But here is the unique and frightening part. Immediately following this recession, the rate of money growth fell off a cliff. This is the first recession after which we have seen such a sharp drop in federal money creation. The reason, of course, is the insistence of the Tea/Republican insistence on money-growth reduction.

While the American people are having terrible difficulty paying their bills, the federal government, never has had, and never can have, difficulty paying its bills (unless Congress enforces a debt ceiling). Yet, for reasons unknown, the Tea/Republicans prefer the economy to run a deficit and the federal government to run a surplus. Totally senseless.

The sharp drop in the rate of money creation, leaves no room for surprise that the unemployment rate has not improved. With the economy remaining fragile, the Tea/Republicans resisting deficits, and that unprecedented fall-off in the economic surplus, I fear we are headed for an even worse recession than the terrible one we just suffered.

And when it comes, I predict the Tea/Republicans will blame it on too much federal spending. I liken this to bleeding an anemic, then blaming the subsequent health deterioration on too much blood.

Meanwhile, the Tea/Republicans have convinced the public that federal spending will cause an inflation and higher taxes, ignoring three facts:
1. The lack of deficit spending causes recessions, a far more immediate problem.
2. Deficit spending has not been the cause of inflations (See: INFLATION.)
3. There is zero relationship between taxes and deficits in a Monetarily Sovereign nation.

In summary, by resisting federal “deficit” spending, i.e. by draining the anemic patient of blood, the Tea/Republicans will cause the next recession, and unless the government comes to its senses, this recession will be deeper, longer and more tragic than anything since the 1930s.

Be prepared to suffer at the hands of ignorance.

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

MONETARY SOVEREIGNTY

–The loss of Monetary Sovereignty–How Congress puts us on a path to recession or depression

In August, 1971, the U.S. became Monetarily Sovereign by going off the gold standard. The purpose was to remove the artificial and uncontrollable limit on dollar creation imposed by gold mining and gold exchange.

The dollar now could be created without the supply limits of a physical substance. Thus, the federal government gave itself the unlimited ability to pay any bill of any size at any time, merely by crediting the bank accounts of its creditors. Unlike monetarily non-sovereign nations, the U.S. never could be forced into bankruptcy. We had total control over our finances.

Since that date, the Federal Debt Held by Private Investors has risen more that 3,400%. In the same period, inflation has risen comparatively less at 450%.

This may come as a surprise to those who link federal deficits with inflation, but there has been no relationship between federal deficits and inflation.

Deficits have not caused inflation. The main cause of inflation has been oil prices, (See: INFLATION). This, together with the Fed’s power to keep inflation at about 2%-3%, has kept the inflation forecasts, endlessly warned by the debt-hawks, (See: Unsustainable Debt) from coming to pass.

With our massive “deficit” spending, our Monetary Sovereignty has spared us the agonies felt by such monetarily non-sovereign nations as Portugal, Ireland, Italy, Greece and Spain (PIIGS), which are not on a gold standard, but rather are on a “euro standard.” These nations surrendered their unlimited ability to pay their bills, so they risk bankruptcy and depression.

Every depression in U.S. history, and most recessions, have been linked to reduced money growth (MONEY GROWTH. Because a growing economy requires a growing supply of money, these nations do not control the means to grow their economies, so are in serious danger. In fact, all monetarily non-sovereign governments – including American cities, counties and states – live on the edge of a razor blade.

Without additional money coming from outside their borders, these governments often find themselves unable to pay their bills. In the U.S., the source of this additional money can be the federal government, which has the unlimited ability to create our sovereign currency. The dollars created by the federal government are called (misleadingly) the “federal deficit.” Without federal deficits there would be no dollars in America.

Contrary to popular belief, the federal debt is not functionally the total of federal deficits. By law, the Treasury is required to create T-securities in the amount of federal deficits, and exchange these securities for dollars it previously created. The requirement is legal, not functional. The system is a relic of the gold standard days; it has no purpose for a Monetarily Sovereign nation, though it persists. The Treasury, just as easily, could create dollars directly, and eliminate T-security creation.

Because, there is no functional relationship between federal deficits and federal debt, the Treasury could create T-securities and trade them for dollars (aka “borrow”), without there being federal deficits. And the government could deficit spend, without borrowing. But via a bazaar, contrived and obsolete legal maze, the federal debt ceiling prevents the creation of dollars for economic growth.

Being Monetarily has allowed the American economy to build. Were we still on a gold standard, we would be unable to pay our bills. Unfortunately today, as this is written, the Unites States no longer is Monetarily Sovereign. We are monetarily non-sovereign, and in danger of recession or depression, just like the PIIGS. Our loss of Monetary Sovereignty comes from Congress’s refusal to increase the “debt,” which restricts the “deficit,” thereby restricting the money supply.

Because the so-called “deficit” merely is the government’s method for adding money to the economy, it more correctly should be called the “economic surplus.” Our economy is being ruined by a semantic misunderstanding. As money is the lifeblood of our economy, Congress’s actions amount to taking blood from an anemic.

A nation’s money supply can be expressed by this equation:

Money Supply = Trade Surplus + Federal Deficits + Loans (bank & non-bank)

That’s it. Couldn’t be simpler. If our Trade Surplus (i.e. imports minus exports) goes down, our money supply goes down. Currently, we are running a trade deficit, not a surplus, which removes money from our economy.

To counter the trade deficit — to grow our economy — federal deficit spending must go up. There are no alternatives. Germany has chosen the trade surplus route to growth, because it is monetarily non-sovereign, and cannot create its own money. So, it must have money coming in from outside its borders as payment for exports. This is a risky strategy, because it makes Germany subject to the whims of its customers. Just as large corporations can turn unprofitable and be unable to pay their bills, so can monetarily non-sovereign nations lose customers and be unable to pay their bills.

By contrast, our Monetarily Sovereign nation had total control, not only over our money supply, but over the value of our money supply (inflation) via interest rate control. We could live with a trade deficit because our financial control put us in a risk-free position – until America’s leaders voluntarily surrendered our Monetary Sovereignty.

By enforcing a “debt ceiling,” Congress and the President undo the one step that made possible 40 years of economic growth: The end of the gold standard. We now are subject to a de facto gold standard – call it a “politicians’ standard” – and there will be hell to pay. Unless our leaders miraculously come to their senses, our economy will decline and we will enter a period of recession, then depression, such as we never have seen, not even during the 1930’s.

Thus is our penalty for their ignorance.

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

MONETARY SOVEREIGNTY

–How the poor get screwed. Why deficit reduction increases the gap between rich and poor.

Every politician claims to love the poor, the downtrodden, the unemployed. Yet, the same politicians vote to cut the deficit, hurting those poor he/she loves so much. Sadly, the poor buy into it.

Both parties claim that reducing the federal deficit will reduce unemployment and benefit the working class and the poor. Exactly how a reduction in net federal dollars flowing into the economy will stimulate employment and benefit the working class, never is explained, because there is no explanation. It is a bogus argument.

To reduce the deficit requires taxes to be increased or federal spending to be reduced. The Democrats want to reduce the deficit by increasing taxes on the “wealthy.” The Tea/Republicans want to cut the deficit through federal spending reductions. Functionally, there is no difference between a tax increase and a spending reduction; both reduce the amount of money being added to the economy.

Traditionally, the Republicans have favored cutting taxes, an act that benefits economic growth. Democrats traditionally have wanted to spend more, which also benefits economic growth. Unfortunately, the Tea Party, a perverted outgrowth of President Reagan’s memorable statement, “. . . government is the problem,” has taken over the Republican Party, who now will do and say anything to get into power.

This has dragged in the Democrats, who will do and say anything to stay in power, so both parties now are preaching an anti growth line, being led by a group of economic know-nothings. Extreme views often gain favor during difficult times, when people are desperate for a solution, and in this case, the extreme views are supported by the wealthy. Note how such luminaries as Bill Gates and Warren Buffet have made statements actually supporting a tax increase! Why do rich people want their taxes raised? Not out of generosity. Read on.

Because a growing economy requires a growing supply of money, a tax increase and/or a spending reduction reduce economic growth. And no matter how it’s done, deficit reduction hurts the lower incomes most. Consider a tax increase on the wealthiest. What does it accomplish? It reduces the amount of money in the economy. A Monetarily Sovereign nation does not spend tax money. It has no need to. The spending itself creates money. So what happens to tax money? It leaves the economy and is destroyed. It simply ceases to exist.

History shows that every depression and most recessions not only have been caused by reductions in the money supply, but even by reductions in money supply growth. See: SUMMARY. Who suffers most during recessions and depressions – the wealthiest or the poorest? Right, the poorest.

Although tax increases will force the wealthiest to pay more taxes, that will not affect their life styles. They’ll find more tax “loopholes.” They’ll get by on two cars rather than three (Dealerships may fire some working salespeople), and the remodeling of the 2nd home may be delayed a year (Some tradespeople will lose their jobs). But life will go on for the wealthy. Not so for the less wealthy who, during a recession, may become unemployed, lose their housing, spend less and cancel plans for children’s college.

According to the IRS, the bottom 50 percent of Americans earned less than $32,879 and paid only 2.9% percent of the nation’s income taxes, down from 3 percent a year earlier. So to reduce the so-called “deficit,” shall we increase taxes on these folks?

Where the lowest paid really get hit is with FICA. In 2010, income taxes totaled $935 billion, and FICA totaled $875 billion – pretty close. But while all income is subject to income tax, only salaries below $100K are subject to FICA – an enormous saving for the wealthy. And, not only does FICA steal 7.65% from every salaried worker, but it steals another 7.65% from his/her boss. Think of it as 15.3% that could have gone to the salaried employee, but instead goes to the government, where it is destroyed. FICA, not income tax, is the big tax burden on working people.

In short, all taxes and tax increases hurt everyone in the economy — they are recessionary — but they hurt the poor more than the wealthy, so by comparison, the wealthy become wealthier. Tax increases make the wealth gap grow.

Now consider a federal spending reduction. Medicare and Social Security are the biggest targets, and who relies most on these federal programs – the 1% of Americans defined as “rich, who earned an adjusted gross income of $410,096 or more and accounted for 22.8% of all wages, while paying 40.4% of total reported income taxes? Or are the 99% defined as “not rich” more likely to need Social Security and Medicare?

Right. If Medicare and Social Security are cut, the rich will hardly notice. Warren Buffet probably doesn’t even know whether he receives Medicare and Social Security benefits. Financially, it is meaningless to him. Cutting social programs hurts the poor more than the rich, increasing the gap between rich and poor.

Or, we could cut military spending. This would cut profits and jobs from all those industries that sell to the U.S. military, and it would cut the number of salaried service people. Cutting military programs hurts the poor more than the rich, increasing the gap between rich and poor.

No matter where you look in the federal budget, spending cuts would hurt the bottom 99% far more than the top 1%.

In summary, federal tax increases and federal spending cuts (i.e. deficit reduction) cause recessions, and all three hurt the middle class and poor far more than they hurt the rich. Deficit reduction will increase the gap between the rich and the poor.

And the wealthy have brainwashed the non-wealthy into thinking this is a good thing.

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

MONETARY SOVEREIGNTY

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