Useful idiots

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Mentally challenged people can sometimes be useful as a dull stone on which we can hone our economic definitions.

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For instance, one reader of Rodger’s blog claimed that there has been no austerity in the USA, Japan, or Europe.

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Perhaps this person thinks there is no austerity unless there are federal budget surpluses (such as the U.S. government had for the fiscal years 1998, 1999, 2000, and 2001).

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Or perhaps this person does not understand what austerity is.   Wikipedia’s definition of austerity is partly correct…

In economics, austerity is a set of policies with the aim of reducing government budget deficits. Policies grouped under the term “austerity measures” may include spending cuts, tax increases, or both.

Yes. If a central government seeks deficit reduction, then there is austerity.

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However this definition is flawed. At the bottom of this post I will claim that the correct definition of austerity is any government program or policy that widens the Gap between the rich and the rest. Even a deficit increase can be austerity, if all the government money goes only to the rich. More on this below.

Regarding the motives for austerity, Wikipedia fails to distinguish between the various degrees of Monetary Sovereignty between nations.

Austerity may be undertaken to demonstrate the government’s fiscal discipline to creditors and credit rating agencies by bringing revenues closer to expenditures.

This is only correct in some circumstances.

To clarify this issue of the motive for austerity, let us divide nations into three types…

[1] NATIONS WITH NO MONETARY SOVEREIGNTY, such as the euro-zone nations, or nations like Ecuador which use a foreign currency (the U.S. dollar) instead of using a native currency. Such nations can get money if they have a trade surplus. However if they have a trade deficit, they must borrow all their money. They quickly become like Greece, caught in a death spiral of ever-increasing debt and austerity.

NOTE: even when such nations have trade deficits, they can still survive if the central monetary authority is benign, and it distributes money at zero or near zero interest. Examples include the six nations of the Organization of Eastern Caribbean States. These six nations use the East Caribbean Dollar, which is pegged to the U.S. dollar, and whose central bank is in Basseterre, St. Kitts.

Antigua and Barbuda
Dominica
Grenada
Saint Kitts and Nevis
Saint Lucia
Saint Vincent and the Grenadines

(The British overseas territories of Anguilla and Montserrat also use the East Caribbean Dollar. Two other “observer” members of the Organization of Eastern Caribbean States are the British Virgin Islands, which use the U.S. dollar, and Martinique, which uses the euro).

Motive for austerity: If these nations have a trade deficit, and if the central bank refuses to write off their debt, then they must live on a credit card. As their debt mounts, their governments are forced to impose austerity on their ordinary people. Their governments must continually try to reduce their debt by starving their citizenry, and selling all its public assets to the rich. This causes the nation’s debt to become even worse. The nation falls into a death spiral. Still, the whole nightmare remains gratuitous, since the central government could choose to reclaim its Monetary Sovereignty. If the government chooses not to do this, it is because the government wants to widen the Gap between the rich and the rest.

[2] NATIONS WITH PARTIAL MONETARY SOVEREIGNTY. These nations have their own sovereign currencies that are not widely accepted outside their national boundaries. Such nations can easily pay government employees, but they must obtain foreign currencies in order to buy imports, since foreigners want to be paid in US dollars, or in euros, or in some other widely used currency. These nations have full Monetary Sovereignty (MS) over their own currencies, but no MS over the foreign currencies they use.

Motive for austerity: If the austerity occurs in the nation’s own currency, it is gratuitous, unless the nation has an inflation problem, and its government wants to remove some of the money from the nation’s economy.  If the austerity occurs in the foreign currency that the nation uses, it is because the nation has a trade deficit and / or it has a foreign debt, and the government simply cannot get enough foreign currency.

[3] NATIONS WITH FULL MONETARY SOVEREIGNTY. The USA is the only nation with 100% Monetary Sovereignty, since its domestic economy and foreign trade are both transacted entirely in U.S. dollars. China, Australia, Canada, and Japan are almost there, since their currencies are widely accepted, but not as universally accepted as is the U.S. dollar. China, for example, accepts U.S. dollars for the goods it sells to the USA.

Motive for austerity: The closer a government comes to 100% Monetary Sovereignty, the closer its austerity comes to being 100% gratuitous — i.e. strictly designed to widened the Gap between the rich and the rest.

Wikipedia again…

In most macroeconomic models, austerity generally increases unemployment as government spending falls, reducing jobs in the public and/or private sector, while tax increases reduce household disposable income, and thus reducing consumption.  

Most macroeconomic models? Try all realistic macroeconomic models. Only liars claim that austerity boosts employment and disposable income.

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Speaking of the USA, its people are divided into two classes…

[1] People whose income and wealth comes from the ownership of capital and property, and from government subsidies and government contracts.

[2] People whose livelihood depends on wages, or on charity (e.g. soup kitchens) or on fixed incomes such as Social Security.

Austerity targets the second class, and has no effect on the first class. For example, even when there is “sequestration,” dollars keep flowing to military contractors, and to Wall Street for bailouts. For the USA the sole purpose of austerity is to widen the Gap between the two classes.

Wikipedia again…

Austerity measures are typically pursued if there is a threat that a government cannot honor its debt obligations.

The USA has no problem honoring any debt obligations. Occasionally a right-wing blog will admit this. Here’s an example from Forbes titled, “It Is Impossible For the U.S. to Default.” It was written by one John T. Harvey, who is a proponent of MMT, although he cannot use the acronym “MMT” with the Forbes crowd.

With so many economic, political, and social problems facing us today, there is little point in focusing attention on something that is not a problem The false fear of which I speak is the chance of US debt default. There is no need to speculate on what that likelihood is. I can give you the exact number: there is 0% chance that the US will be forced to default on the debt. 

We could choose to default, just as a person trapped in a warehouse full of food could choose to starve, but we could never be forced to, since every single bit of the debt is owed in the currency that we and only we can issue: dollars. Unlike Greece, we don’t have to try to earn foreign exchange via exports or beg for better terms. There is simply no level of debt we could not repay with a keystroke.

http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/

John T. Harvey goes on to give a number of quotes to prove this fact. Examples…

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” ~ Alan Greenspan

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

John T. Harvey (in Forbes) ends with this… 

We have plenty of problems in the world. No point in making one up.

Unless you want to use lies to starve the masses, and therefore widen the Gap between the rich and the rest.

Despite these occasional flashes of sanity in right-wing blogs, the austerity beat goes on as though such flashes never occurred.

And clowns like the one noted at the top continue to claim that despite massive and ongoing austerity, there has been no austerity at all.

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A BETTER DEFINITION OF AUSTERITY

Beyond all this, I define “austerity” as any government program or policy that widens the Gap between the rich and the rest. This would include “quantitative easing.”

This past week it was officially announced that Japan slipped into recession yet again—its 5th since the global crisis of 2008-09. (“Recession” meaning a fall in GDP.)

Meanwhile the Bank of Japan has been billions of dollars’ worth (in yen equivalents) of corporate bonds and stocks (“quantitative easing”). There was $650 billion in QE for fiscal year 2013, followed by a recession. In 2014 it was $1.7 trillion, which again was followed by a recession. When the Japanese government’s fiscal year 2015 ends on 31 March 2016, there will be over $2 trillion in QE for 2015.

QE is called “stimulative,” but it only stimulates the speculative markets, where rich people play. QE does little or nothing for the real economy. QE widens the Gap between the rich and the rest. Thus, by my definition, austerity includes QE. Since spring 2013, Japan’s stock markets have risen by 70 percent. Corporate profits have doubled. Japanese corporations now sit on a cash hoard of more than $3 trillion, which they refuse to invest in Japan, in decent paying jobs, or in wage increases. And the government refuses to ease up on its austerity for the masses.

As a result, median real wages have been falling at a rate of 2 percent or more each year since 2009. Most of the jobs created in Japan in the past few years (as in the US and Europe) have been low paid part time and temporary jobs.  Japan’s “contingent” labor force (i.e. its temporary and part time workers) is about 38 percent of all employed. Many of Japan’s better paid manufacturing jobs have been offshored to China.

Further exacerbating all the above is the sharp rise in inflation from imports for Japan households and consumers.

Here is commentator Jack Rasmus…

A secondary effect of Japan’s QE and monetary policies has been to dramatically reduce the value of Japan’s currency. The Yen in recent years has fallen almost 30 percent against the US dollar; and up to 50 percent against other Asian and emerging market currencies, including China’s. That means Japan prices for imports have risen sharply, further reducing real wages and incomes for workers, retirees, and average consumer households.

Japan has a trade surplus (i.e. Japan is a net exporter) but only in durable goods. Meanwhile Japan must import most of its consumer goods.  This is where price inflation hurts average Japanese people.

Prime minister, Shinzu Abe’s, answer in 2013 was QE and free money for banks and investors and then austerity and taxes on consumers in 2014. And when the 4th recession hit in spring 2014, Shinzu Abe’s answer was not only to expand QE, but to introduce tax cuts for corporations within months after he just raised taxes on consumers. To offset wage and income decline Abe’s answer was to plead with Japanese corporations to raise wages voluntarily—a plea which they dismissed publicly as ‘unrealistic’.

http://www.telesurtv.net/english/opinion/Japans-5th-Recession-in-7-Years-Whos-Next-20151128-0018.html

Austerity folks, it’s here and now, and waiting to nail you if it hasn’t already.

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Side effects

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Famine entails side effects such as disease and violence, which kill as many people as does starvation.

Austerity is engineered famine. Its side effects include rampant theft by police officers, whose banditry is euphemistically called “civil forfeiture.”

As the austerity-famine rages, law enforcement agents nationwide are now robbing people of their money, valuables, vehicles, and property without arresting their victims, or charging them with any wrongdoing. This theft-by-police occurs at the federal, state, county, and municipal levels.

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It is called “civil forfeiture” for a reason. With criminal forfeiture, you must be convicted before the cops can rob you.  With “civil forfeiture” you don’t have to be convicted or even charged with any crime. Moreover in criminal court you must be found guilty “beyond a reasonable doubt.” In civil court the cops need only show by a “preponderance of the evidence,” or “more likely than not,” that your cash and property were the proceeds of wrongdoing.

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The following is an example, although in this case the victim was actually charged with a crime (but acquitted). In June 2012, Robert Pardee was driving through Powesheik County, Iowa on I-80, when an Iowa State trooper pulled over Mr. Pardee for a non-working taillight. During the stop, the state trooper saw $33,100 in cash in Mr. Pardee’s car and arrested him for possessing a “small amount of marijuana” (which the cop planted in the car). In Iowa, first-time offenders can face up to six months in jail and/or $1,000 in fines.

One year later, a district court found Mr. Pardee innocent, but ruled that the cops could keep the $33,100 they stole from him. Despite Pardee’s acquittal, the district court and then the Iowa Court of Appeals said the cops could keep the money. Furthermore the Iowa Court of Appeals ruled that cops could pull over anyone with an out-of-state license plate, just for being from out of state. According to a report by the Des Moines Register, Iowa State troopers issued almost as many traffic citations to cars with California license plates as they did to Iowa drivers.

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The roving bands of cop-bandits are called “interdiction teams.” Between 2011 and 2013, Iowa State Patrol bandits robbed their victims of $7 million in cash.

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In 1986 alone, the U.S. Justice Department “forfeiture fund” had $94 million stolen from victims. By 2010 the “forfeiture fund” had over $1 billion, all of it taken from people.

That’s at the federal level. How much money the states, counties, and municipalities have stolen is unknown, since they don’t even keep track of what they rob, let alone publish it.

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Police banditry is allowed in 42 of the USA’s 50 states at all levels. And because the theft is allowed, the cops have an extreme profit-incentive to constantly increase their theft. It is now open season on motorists.

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The piracy began in June 1971 when President Nixon’s “War on Drugs” began to use police theft as an instrument of “law enforcement” (i.e. enforcement of the social structure of upper, middle, and lower classes). From then on, when it came to proving that someone’s property wasn’t being used for criminal purposes, the burden of proof was on the owner, not the police. The police were allowed to steal whatever they liked and declare that the stolen items were used to further a crime. The rightful owner had to somehow prove that the allegation was false – something that can be extremely difficult to do.

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At first the cops had to hand over their stolen booty to the court system. But in 1984, under President Ronald Reagan, the Comprehensive Crime Control Act said that cops could keep most or all of what they steal. This was called “equitable sharing.” Ironically the federal cops (FBI, customs officers, U.S. Marshals, etc.) still had to give half of their stolen loot to the U.S. government, which has no need for extra money.

Most of the police banditry happened at the federal level until 2011, when Washington politicians adopted austerity mania. That caused police theft to become a nationwide epidemic.

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Statistically the police bandits tend to prey on low-income people of color, or on anyone else who looks like he does not have the means or the will to fight the cops in court. This is in keeping with the animal nature of law enforcement people, all of whom ultimately work for the rich, and who attack the weakest victims first. The very people who are supposed to enforce the law are the ones who profit from breaking it.

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On 27 April 2015, Loretta Lynch replaced Eric Holder as U.S. Attorney General. Ms. Lynch   supports police theft, and has boasted that as a prosecuting attorney, she “has used civil asset forfeiture in more than 120 cases, raking in some $113 million for federal and local coffers.” She calls police banditry a “wonderful tool.”

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Bottom line: when we support any form of cruelty against anyone, including support for federal budget austerity (i.e. deficit reduction) we support cruelty against ourselves.

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Comment on MMT

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Some people can’t get with MMT because they find MMT claims to be unproven or not explained well enough. I sympathize with these people. They remind me of the old axiom, “There’s no such thing as a bad pupil; only a bad teacher.”

The fact is, most MMT people are not clear enough in their writings. This is one reason (among many) why society tends to ignore MMT.

Let’s see some examples of poor writing, chosen at random. This is from a thirty-page-paper written by one Phil Armstrong. It appears on the web site of noted MMT advocate Warren Mosler.

http://moslereconomics.com/wp-content/uploads/2007/12/Money-and-MMT.pdf

[1] We are now in a position to consider the core propositions of MMT and the extent to which they are consistent with state and credit theories of money. MMT is founded on the insights provided by the state theory of money. Money is chartal; a creation of the state, and also a creation of banks whenever banks make loans. (My addition, E.H.)  

Both banks and Monetarily Sovereign governments create money. MMT people affirm this, but they should do it more often, especially when their papers extend for thirty pages. Never presume that your reader understands a point, even if you have already made the point several times. It is better to be thought repetitious than muddled.

[2] The state decides upon the unit of account and is able to issue its own debt or ‘tax credits’ denominated in this unit.

“Issue its own debt” means the State can sell sovereign bonds. Why don’t MMT people say that?  When MMT people become sloppy with the word “debt,” they open the door to things like the “national debt” hoax, and to false claims that banks create all the money.

[3] In MMT, money is considered as a social institution, where ‘credit and credit alone is money’ (Innes, 1914).

Whoops. MMT people are as sloppy with the word “credit,” as they are with “debt.” In this case, they fail to clarify that “credit” can mean two different things. It can mean faith in the currency, or it can mean a loan. If “credit” means faith in the currency, okay, but MMT people need to clearly say that, always. If “credit” means a loan, then they contradict themselves, for it means that all money consists of bank loans, which is false.

[4] Here Armstrong’s paper quotes Warren Mosler himself …

MMT recognizes that the currency is a public monopoly, taxes function to create unemployment, and the funds used to make payments to the government come from the government.

Huh? Taxes create unemployment? How? And is government-created money the only money that can be used to pay taxes? Can’t I get a bank loan and pay taxes with those loan dollars? It would be unadvisable, but it is possible. MMT people are not clear enough in their writing.

[5] (Returning to Armstrong’s paper): One of the key insights of MMT is the explicit recognition that the state must issue money before it can collect it. Spending precedes taxation; the currency is a public monopoly. Only money that has already been issued by the state can be collected in taxes.

No, no, no. In trying to show that Monetarily Sovereign governments do not run on tax revenue, Armstrong traps himself in a chicken-and-egg paradox. Which comes first: government taxes or government spending? Armstrong and MMT say spending. Oh? Can’t I pay this year’s taxes with money I have left over from last year’s spending? Yes I can. And didn’t taxation exist before last year’s spending? Yes it did. So which came first, the chicken or the egg?

Moreover, if you claim that a government must first spend before a government can tax, then you ignore the fact that banks also create money. This confuses your readers. What further confuses them is when you fail to differentiate between “money” and “currency.” Banks can create money, but only central governments have true sovereignty over the currency. MMT writers assume you already know that. That is a crucial error. MMT descriptions are too academic, too unclear, and too full of assumptions and sloppy word use.

For my own explanation of why the U.S. government does not need tax revenue, see this for example…

https://monetarysov.wordpress.com/2015/11/23/destroyed-upon-receipt/

I shall end here, but there are many more examples from this paper. There are also quotes from Warren Mosler that are flat wrong. (An example is when Mosler discusses the “gold standard.”)

If you have questions about MMT, or you are confused, ask me and I’ll try to clarify things for you. Thanks for reading.

On government spending

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I have commented several times on people who falsely think that all U.S. dollars are lent into existence as bank loans, and that we therefore owe our souls to the bankers. They totally reject Rodger Mitchell’s teachings, since Rodger tends to focus on the devastation caused by gratuitous austerity, in which politicians reduce government spending in order to starve us. For these people, there is  no government spending. There is only government borrowing. Hence they think the Fed and the banks rule the universe. They think that politicians have no say over central government spending, and that politicians do not vote for austerity. They think that Monetary Sovereignty is held by banks, not the U.S. government.

Once people fall into this mental trap, it is very difficult to pry them out of it.

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Their entrapment often happens like this…

One day they discover that “fractional reserve banking,” is a myth, and that banks create loan money out of thin air by crediting accounts. This apparently gives supreme power to bankers. After all, whoever controls the money controls society.

(If they are anti-Semites who believe that “all bankers are Jews,” then so much the better, since one delusion feeds the other, allowing them to falsely proclaim that “We all owe the Jews.”) Often they feel that they have stumbled upon the secret of the ages. (“Bankers create loan money out of thin air!”)

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Next they find others online who speak of a wonderful place a long time ago in a galaxy far, far away in which noble Jedi knights used something called “the force” (i.e. government-issued money) to defeat the evil Debt Vader.

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Their delusion is further cemented by lies told by bankers themselves, such as this lie from the Bank of England…

“The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. Monetary policy acts as the ultimate limit on money creation.”

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

There it is, right from the dragon’s mouth. Except it’s a lie, or at best a half-truth. The Bank of England is only addressing the amount of credit (i.e. loan money) in circulation, while ignoring the trillions in government-created money.

The word “credit” itself confuses people. As a noun, “credit” means a loan. As a verb, “credit” means to change (or “mark-up”) the numbers of a bank account. This “mark-up” is done to annotate money that may or may not exist as loans.

The deluded ones think that even if someone hands you a dollar bill, and you deposit it in your bank account, then that dollar was lent into existence by the Federal Reserve, and we all owe interest on it. Hence (they think) we have a “national debt crisis.” (More on this below.)

Some of them encounter MMT writing, which says that not all money consists of bank loans. MMT reveals that Monetarily Sovereign governments also issue money, and not as loans.

However the deluded ones are reassured by people like Paul Krugman, who says,

“I get the premise that modern governments which are able to issue fiat money can’t go bankrupt, whether or not investors are willing to buy their bonds. And it sounds right if you look at it from a certain angle. But it isn’t right.”

http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/?_r=0

(Krugman goes on to say that if MMT was right, then we would have hyper-inflation. Krugman is wrong about so many things that I could dedicate an entire blog to debunking his nonsense. He still thinks that banks directly lend out their depositors’ money!)

Wikipedia backs up this delusion by (falsely) echoing that banks create all the money  — although Wikipedia has a link at the bottom to “alternative theories” such as chartalism, which says that Monetarily Sovereign governments also create money.

https://en.wikipedia.org/wiki/Money_creation#Alternative_theories

Because of this delusion, we see reader comments like this, which I read two minutes ago at the “Institute for New Economic Thinking” (a New York City “think tank” founded by George Soros)…

“The root of the problem is that the central bank controls the issuance of money. This started when sovereign governments surrendered their basic right to issue money to privately owned banks. This has been THE political issue since the days of ancient Greece. Any government that does not issue the money is controlled by those who do issue it. We need a united movement that understands this. The Greens are the only political party that addresses it in their platform.”

http://www.ineteconomics.org/ideas-papers/interviews-talks/the-global-haves-and-have-nots-in-the-21st-century

The Greens? They call for more austerity just like everyone else. Gratuitous austerity (i.e. federal deficit reduction) has already caused so much poverty that scurvy (the disease) has made a dramatic comeback in the USA.  Symptoms include bleeding gums, mysterious swelling, bruises, fatigue, mood swings, rashes, hemorrhaging, joint pain, and others.

http://www.businessinsider.com/a-disease-that-once-plagued-pirates-is-now-showing-up-in-americas-poorest-people-2015-11

(I’m waiting for Trump to say, “Scurvy? That’s a disease of old-time pirates, isn’t it?)

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Another source of the delusion (that banks-create-all-the-money) is the close relationship between the U.S. Treasury and its main bank, the Federal Reserve.

Randy Wary explains…

While it was obvious two hundred years ago that the national treasury spent by issuing currency, and taxed by receiving its own currency in payment, that is no longer so obvious, because the Fed stands between the Treasury and recipients of government spending, as well as between Treasury and taxpayers making payments to government.

Mr. Wray means that even though money only exists in the accounts of banks and bank-like entities, this does not mean that all money in banks consists of loans from banks. If money in a bank is created by a bank, it is a loan. If money in a bank is created by order of the U.S. government, then it is not a loan (but it may be taxable).

However, as MMT has shown, nothing of substance has changed—even though taxpayers today make payments from their private bank accounts, and banks make the tax payments to Treasury for their depositors using reserves held at the central bank. And when treasury spends, its central bank credits reserve accounts of private banks, which credit deposit accounts of recipients of the government spending.

http://neweconomicperspectives.org/2014/06/modern-money-theory-basics.html

In other words the Fed has introduced some extra steps to U.S. government spending, but the U.S. government continues to spend without borrowing its spending money.

This is not to say that government and the banks face no constraints to their money-creation. For Monetarily Sovereign governments, the constraint consists of the budget authority provided by Congress and the President, plus the political “debt limit” antics, plus the advent of possible (but unlikely) inflation. For banks, the limits consist of capital constraints, plus restrictions on the types of loans that banks can make (and types of other assets that banks can hold).

Unfortunately politicians have removed most constraints from bank lending. The result has been hyper-leveraging, which causes bubbles, plus criminal banking activity.

Meanwhile the government is starving us via austerity, in order to make us slaves of the bankers.

The people who think that all money consists of bank loans want to go back to using the “greenbacks” that were first issued by the U.S. Treasury during the U.S. Civil War…

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“Greenbackers” (i.e. people who think that all money consists of bank loans) see the words “Federal Reserve Note,” on a currency bill, and they think, “Right there is the proof that it was lent to us by the Federal Reserve. The notes carry the signature of the U.S. Treasury secretary, which proves that the secretary borrows all our money from the Fed.”

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Actually, less than three percent of the U.S. money supply consists of coins and paper notes. The dollars in your own bank account have no physical existence, and do not say “Federal Reserve Notes.”

More importantly, all true money exists only in the accounts of banks, but this does not mean that all money in bank accounts consists of bank loans. Even if you never took out a loan for your entire life, and you lived strictly with cash, you would still need banks, since our money system is based on banks – but not strictly on bank loans! Banks simply keep the ledgers for money, some of which is loans, and some of which is not. Since the Fed backs up all U.S. banks, the term “Federal Reserve Note” plus “U.S. Treasury” reassures you that the banking system (where all true money exists) is backed up by a central bank, plus a central government.

When the U.S. government issued “greenbacks” during the U.S. Civil War, we had banks, but not a Federal Reserve System to stabilize and help regulate all banks. We still use “greenbacks” today, but they are called Federal Reserve Notes.

Yes we need to downsize and re-regulate the big banks. Yes, too much money in our society exists as bank loans. Yes, we should remove banks from private ownership as far as possible. Yes we need more public banks like the Bank of North Dakota.

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However it is not possible to eliminate banks or the Fed altogether. We must have banks in one form or another if we are to have any monetary system at all.

Therefore the solution is to increase deficit spending by the U.S. government. (Oh that’s right. I forgot. There’s no such thing as “government spending.” There is only government borrowing. Right?)

The business cycle is essentially a credit cycle (i.e. a loan cycle). Politicians reduce deficit spending in order to make you grovel to them, and to make you a slave of the bankers who bribe them. This forces you to take out more loans of various types. Eventually the collective debt load builds up to the point that it cannot be paid. Business fold. Bankruptcy abounds. At that point the economy slows down and goes into a recession – unless the U.S. government injects money into the economy via increased spending. But if the U.S. government instead imposes austerity, and reduces its deficit, the recession becomes much worse, and can even be made permanent, such as we now have in the USA.

You can see this in charts that Rodger Mitchell has often provided in his blog. Recessions always follow austerity (i.e. deficit reduction) regardless of the size of the so-called “national debt.” Recessions are triggered by debt loads, but they are cured or worsened by the level of government spending.

Again, the solution is to increase deficit spending by the U.S. government. Either that, or have public state banks (like North Dakota’s) which can create loan money out of thin air, and charge little or no interest.

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We’re doomed!

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“Headlines And Global News” is a blog out of New York City.

HNGN: Congressional Budget Office Director Keith Hall said that over the next 10 years, “federal spending is projected to rise relative to the size of the economy because of the growth in health care and retirement programs and escalating interest costs.”

COMMENT: So what? The U.S. government can afford anything.

HNGN: If current federal tax and spending policies remain unchanged, U.S. debt held by the public will reach 77 percent of gross domestic product by 2025, “up from 74 percent at the end of 2015 and roughly twice the 38 percent average of the past five decades,” according to a presentation given by Congressional Budget Office Director Keith Hall.

COMMENT: So what? The U.S. government can afford anything. By the way, in mentioning “U.S. debt held by the public,” Keith Hall reveals that half of the so-called “national debt” is owed by the U.S. government to itself. Since the U.S. government can create infinite dollars, or can simply cancel this debt to itself, where is the “crisis”? Also, suppose that “U.S. debt held by the public” reach 77 percent of GDP. With a $15 trillion GDP, that would be $11.55 trillion. So what? This will have zero effect on the U.S. government’s financial “sustainability.”

HNGN: The federal budget deficit for fiscal 2015 is at its smallest since 2007, but Hall says that over the next 10 years, “federal spending is projected to rise relative to the size of the economy because of the growth in health care and retirement programs and escalating interest costs.”

COMMENT: So what? The U.S. government can afford anything. The more these bastards doom us with austerity, the louder they scream that we will be doomed unless we have a lot more austerity.

HNGN: “To put the federal budget on a sustainable path for the long term, lawmakers would have to make major changes to tax policies, spending policies, or both – by reducing spending for large benefit programs below the projected amounts, letting revenues rise more than they would under current law, or adopting some combination of those approaches,” Hall said.

COMMENT: That sounds ominous. Let’s run it through the Star Trek universal translator in case it’s important…

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Keith Hall’s job as head of the CBO is to promote U.S. government austerity. The sole function of austerity is to widen the Gap between the rich and the rest, and between Wall Street and Main Street.

HNGN: The current two-year bipartisan budget deal proposal, which passed the House and is now under consideration in the Senate, would reduce deficits by about $80 billion over the next 10 years, the CBO said Wednesday, according to Reuters.

COMMENT: In other words the recession will become much worse for average Americans (but the Gap between the rich and the rest will become wider than ever).  The U.S. government’s budget deficit is the economy’s surplus.

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HNGN: While the legislation would ease mandatory spending caps and increase discretionary spending by $80 billion over the next two years, the CBO says it would produce larger savings over the long haul.

COMMENT: When people talk about the U.S. government “saving money,” they are trying to make you think that the U.S. government has a limited amount of money. Therefore you must have more poverty and austerity, in order to keep America “sustainable.”

HNGN: Sen. Rand Paul, the Republican presidential candidate from Kentucky, said during Wednesday night’s GOP debate that he plans to filibuster the budget deal. “This is exactly the opposite of what every conservative Republican in America wants, and I’m going to do everything I can to stop it,” Paul said. “I will filibuster it, I’ll delay it, I’ll shout about it. I’m going to talk about it until I’m tired of talking about it and until people wake up and say this is wrong for the country.”

http://www.hngn.com/articles/145249/20151029/federal-debt-will-reach-77-of-gdp-by-2025-without-major-policy-changes-cbo-says.htm

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Destroyed upon receipt?

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Reader “Smerls” says some aspects of MMT are simply unbelievable, because MMT people have never proven them.

(However “Smerls” believes politicians who claim, for example, that Social Security is “insolvent,” even though politicians have never proven this claim. Politicians can’t provide any proof, since it is a lie. Politicians spout this lie in order to make you grovel before them, and to legitimize the ever-widening Gap between the rich and the rest.)

I appreciate “Smerls’” frustration. Most MMT writers are unreadable. Worse, some of their claims are flat wrong.  For example, most MMT people claim that federal taxes “drive money,” meaning that federal taxes are what sustain the legitimacy of, and demand for, a sovereign currency. This is obviously false, since many countries have no federal taxes or capital gains taxes, yet there is a demand for their sovereign currencies. And this is only one example of an MMT falsehood.

“Smerls” wants to believe in MMT, but can’t, since “he” (I will use the pronoun “he” for convenience) never gets his questions answered satisfactorily. And the MMT people don’t care.

I myself do not read MMT blogs. There are too full of errors, and their writers have sealed themselves into an academic bubble that no one cares about (including me).

Therefore we have this blog, plus Rodger Mitchell’s blog.

http://mythfighter.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/

For one thing, “Smerls” wants proof that federal tax revenues are destroyed upon receipt.

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In understanding this, we must first understand that money is not physical. Instead, money is a way to keep score, exactly like the points on an electronic scoreboard. A dollar, like a point, is a strictly mental unit of account that has no physical existence, and only has value because everyone agrees that it does.

Coins and bills can be traded and used like money, but they are not money, strictly speaking. They represent money. Likewise the title to a car, or the deed to a piece of real estate, represent the car or the real estate, and can be traded – but they are not the car or the real estate. They bear a written (and socially acknowledged) claim to ownership of the car or real estate. A dollar bill in your hand represents a written (and socially acknowledged) claim to one dollar’s worth of “full faith and credit” in the money system.

When you write a bank check, the check is not money. It represents money. The check can be used to buy things or pay for things, but this occurs because the check bears instructions for the accounting of money, which exists only in the digital ledgers of banks. The check instructs your bank to debit your account by the amount of the check, and to credit someone else’s account by the same amount. It’s all digital.

These are not mere semantic technicalities. They are the essence of money. Money only exists in the digital accounts of banks and bank-like entities. Check this out…

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When you write a tax check to the U.S. government, the check instructs your bank to debit your account by the amount of the check, and to credit the U.S. Treasury’s account by the same amount. But since money is not physical, and can be created ad infinitum by the U.S. government (like points on a scoreboard) the U.S. Treasury has no need or use for your money. Your bank account is debited, and the IRS (which is part of the Treasury) acknowledges it. Where did your money go? It went to the same place that scoreboard points go to when we debit a scoreboard: nowhere. It was destroyed. Nothing physical moved. The U.S. Treasury’s word for this is that the tax revenues were “cleared.”

Some people cling to their delusion that money is physical by talking about “digital electrons.” This is silly. (Moreover electrons — unlike protons and neutrons — have no physical existence. We speak of electrons and light-photons as “particles” for mere convenience.)

Other people cling to their delusion by claiming that when you write a federal tax check, your money “goes” to a U.S. Treasury Tax and Loan account. However TT&L accounts are mere digital receipts (or records) of tax payments that are maintained by certain banks.  TT&L accounts are also used to track and account for the “dispersal” of some forms of Treasury “funds.”

The words “dispersal” and “funds” are in scare-quotes because – again — money is not physical. Nothing moves physically. We just change the numbers.

TT&L accounts are mainly used to manage bank reserves when banks want to settle payments with the U.S. government. These reserves are a special form of currency, but they are   technically not money, since reserves cannot be spent in society as money. Instead, bank reserves are a secondary points system.

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Reader “Smerls” says that, “MS theory is basically national accounting masquerading as economics.”

Physicists use the word “economy” when they speak of energy. Economists study the flow of human and non-human energy and resources. Money is simply an accounting system for this flow. A dollar is a unit of account. Monetary Sovereignty explains how the accounting system really works.

Reader “Smerls” says, “I have had many discussions regarding these statements with a number of MS/MMT folks in the past and no one has provided proof or at least a reasonable explanation why these statement would be true. The best they could come up with is that it is simply accounting semantics.”

All economics, indeed all discussions of money, are essentially “accounting semantics.” When a politician or media pundit falsely claims that “Social Security is insolvent,” the word “insolvent” is an accounting term. So are terms like “funding,” “bankrupt,” “interest,” “expenses,” “deficit,” “balanced budget,” money,” “receipts,” “revenue,” and so on. These are all accounting terms, regardless of who speaks them. Accounting is a crucial and indispensable fact of all human endeavors.  However there are correct forms of accounting, and there are other forms used by liars for their own gain at your expense.

Reader “Smerls” says that, “I do respect MS and do find it useful, but with a number of flaws on a number of levels. Statements like these are to me why most people ‘don’t get’ MS.”

If there are any “flaws,” they are weaknesses of explanation. As a theory, Monetary Sovereignty deals in facts, and is therefore as sound as is the theory of thermodynamics, or hydrodynamics.

Why don’t people “get” Monetary Sovereignty? Because of hate and habit. People who are not rich are financially insecure. (Many are in abject suffering.) Most people try to reduce their mental insecurity by hating everyone who is below them on the scale of wealth, income, and power. (“At least I’m not as worthless as that bastard.”)

I call this phenomenon “Gap dynamics,” and it is simply a rehashing of Rodger Mitchell’s teachings.

Hatred-of-those-below becomes a deeply ingrained habit that rules most people their whole lives. If you are not rich, then your hatred (caused by your insecurity) makes you believe lies such as “The U.S. government is broke.” You believe this lie so you can point to those below you and call them parasites. However this same lie lets people above you to call you a parasite, and to keep you starving. Wherever you are on the social ladder, you tend to think of yourself and everyone above you as “makers,” while you think of everyone below you as “takers.” This delusion is a product and a creator of hate, selfishness, and insecurity. Monetary Sovereignty debunks all the lies that sustain this delusion and human suffering. People who reject the facts of Monetary Sovereignty are those who habitually cling to the lies that sustain their hate.

“Federal tax revenues are destroyed upon receipt? Ridiculous!”

“Why do you think it’s ridiculous?”

“Because it just is. Besides, most people agree with me.”

Once a person is habituated, he can only break out of his habit by having a sincere desire to fully understand something. This desire must be charitable (or at least neutral) and not simply a desire to refine one’s hateful delusions. Developing this charitable desire is always a matter of choice (i.e. free will). No one can create it in us.

Reader “Smerls” is an example of someone who has made the choice to sincerely and positively try to understand, but “Smerls” has not been given enough help by MMT people. I blame this on the MMT people. They tend to be academics who chatter with each other in an academic bubble — which is why no one hears them outside their bubble, and also why they never notice or correct their errors, such as “taxes drive money.”

As I noted above, I myself do not read MMT blogs. They are too annoying.

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Austerity and SRDH

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Most people (not all) cope with their suffering by hating everyone who is below them in wealth, income, and social power. In turn, the people below them hate the people below them, and so on, down and down. Thus, collective hate is mainly directed downward.

This happens because, collectively speaking, the people below us are weaker, and are therefore easier for us to attack than are people above us. Average people may envy and resent the rich, but their strongest hatred is reserved for everyone below them.

It call this phenomenon “Gap dynamics.”

It occurs in men and women of all races worldwide. For example, in the video below, a black male is very racist toward Hispanics.

Meanwhile in Mexico, Hispanics are very racist toward Native Americans.

Regardless of your position on the social ladder, the wider the Gap above you, the more you suffer, and the more you cope with this by stomping the people below you. (I refer to people in general, not to you personally. Not everyone plays the “Gap game.”)

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Federal fiscal austerity (i.e. deficit reduction) ensures that the lower classes stomp each other, rather than unite against the upper classes.

For example, the euro currency has made austerity obligatory in some European nations. Austerity in turn has dramatically widened the Gap between the rich and the rest, and has plunged the euro-zone masses into poverty.  The European masses respond to this attack from above by attacking refugees below. The U.S. masses are the same. Politicians promote and exploit this phenomenon (especially Republicans and “New Democrats”).

The poorer the masses become, the more they hate everyone below them, thereby causing themselves to become even poorer, since they support austerity, and since they prevent unity from forming in the lower classes.

See video…