After learning of the recent passing of Senator John McCain on August 25, 2018, we would like to give a brief eulogy for this great man. We at the TSAP have clearly had our differences with him politically on most issues, but we could never deny him the respect that he deserves. To call him a hero would be the understatement of the century, both for his undeniably great courage as a war hero in Vietnam as well as his constantly fighting the good fight against the current corrupt cesspool of an authoritarian regime during America's dark night of the soul, up until the very moment that he lost his final battle with brain cancer. Few could honestly say that they have done even a fraction what he has done in his 81 marvelous years on this Earth.
And shame on anyone who tarnishes his name by spreading vicious lies and slander about him as some people (and bots) have apparently been doing lately, regardless of where they happen to fall on the political spectrum. Seriously, knock it off. NOW.
Whether you love him, hate him, or are altogether indifferent about him, one thing is absolutely for certain. If there is a heaven, John McCain is one of the very few Republicans (or anyone in Congress these days for that matter) getting in. May he rest in peace.
Thursday, August 30, 2018
Tuesday, August 21, 2018
The Jig Is Up, Donald!
Wow, today must be the Donald's very worst day ever, or least in a great while. First, his former campaign chair Paul Manafort (of Russiagate infamy) was found guilty of eight out of 18 counts related to tax fraud and bank fraud (the rest were a hung jury), and is thus now a convicted felon. Secondly, his former lawyer and personal "fixer", Michael Cohen, has just pled guilty to eight counts of his own as well, most significantly including two related to campaign finance violations. You know, that whole bit about illegally paying hush money to two porn stars to keep quiet about Trump's affairs with them, so as to influence the 2016 election in Trump's favor, turned out not to be a hoax after all--and it directly implicates Trump himself since the payments were about him.
So not only have both of these former associates of his now effectively joined the growing club of convicted felons in his orbit, but now they are in a crucial position to "flip" on Trump. And there is a very good chance that they will both sing like a canary, if they haven't done so already. It's only a matter of time. Check checkity check check, checkmate!
The jig is up, Donald. The mounting evidence of your numerous high crimes and misdemeanors can no longer be denied. So do us all a YUUUUGE favor and RESIGN, yesterday. Clean out your desk now, and don't let the door hit you on the way out.
Or, as you like to say, "YOU'RE FIRED!"
So not only have both of these former associates of his now effectively joined the growing club of convicted felons in his orbit, but now they are in a crucial position to "flip" on Trump. And there is a very good chance that they will both sing like a canary, if they haven't done so already. It's only a matter of time. Check checkity check check, checkmate!
The jig is up, Donald. The mounting evidence of your numerous high crimes and misdemeanors can no longer be denied. So do us all a YUUUUGE favor and RESIGN, yesterday. Clean out your desk now, and don't let the door hit you on the way out.
Or, as you like to say, "YOU'RE FIRED!"
Sunday, August 12, 2018
Interest Rates: A Razor-Sharp, Double-Edged Sword
After debunking the Big Lie of Economics (namely, that federal taxes actually pay for federal spending and that the federal government can somehow run short of dollars) in our previous post, the question of inflation and how to control it remains. Most economists (including Rodger Malcolm Mitchell) believe that raising interest rates is the best way to do control inflation, while others (mainly in the Modern Monetary Theory (MMT) school of economics, along with Ellen Brown) believe that doing so is practically blasphemy and will only make things worse, relying instead on taxes of various kinds (if anything at all) to control it, albeit crudely. So which is it?
Well, it seems that the answer is a lot more nuanced than either side likes to believe. For starters, there are at least two different kinds of inflation: 1) cost-push inflation, and 2) demand-pull inflation. Sometimes both types occur together almost equally, other times one clearly outweighs or excludes the other. And whether raising interest rates is helpful or harmful depends on exactly which kind of inflation one is trying to fight.
For cost-push inflation, which is caused by rising production costs resulting from things like higher fuel prices, taxes, or borrowing costs on businesses that get passed onto consumers. And raising interest rates will only make that kind of inflation worse by increasing borrowing costs for businesses even higher still. Doing so is like fighting fire with gasoline, and should generally be avoided like the plague.
For demand-pull inflation, which is caused by demand for goods and services outstripping supply for same, on the other hand, raising interest rates is highly effective at preventing and curing such inflation. If interest rates are (artificially) coupled to money supply, raising the former will effectively shrink the latter, which is of course disinflationary or deflationary. But even more importantly, whether they are coupled to the money supply or not, raising interest rates also increases the demand for dollars by increasing the reward for holding them. Remember, as Rodger Mitchell explains, Value = Demand/Supply, and Demand = Reward/Risk, where inflation and default are the risks and interest is the reward.
(Since the risk of default is by definition zero for a Monetarily Sovereign government that consistently acts like it and is not foolish enough to borrow money denominated in a foreign currency, that leaves only inflation vs. interest. And the net reward is given by: Interest Rate - Inflation Rate = Real Cost of Money.)
Note too that interest rates can have both types effects, but which one outweighs the other depends on the type of inflation as well as the general condition of the overall economy. At the same time, the effects of raising and lowering interest rates need not be symmetrical, since lowering interest rates to stimulate the economy often amounts to "pushing on a string" in terms of effectiveness. Especially since interest on Treasury securities is literally new money that is pumped into the economy, and lowering rates will reduce that money accordingly. True, there is in fact a positive correlation between the effective Fed Funds Rate and the CPI inflation rate, but that is as much of a chicken-and-egg problem as anything, given that the two types of inflation are both measured the same way, and that the FERAL Reserve usually raises rates in response to or in anticipation of inflation. (For all their faults, they have generally succeeded in keeping inflation more or less under control at least since the post-gold standard era.)
But how exactly does one distininguish which type of inflation predominates at a given time, and thus whether to raise or lower interest rates? Usually it is fairly simple. When the velocity of money (the rate at which money circulates through the economy) is going "too fast for conditions" relative to the economy, that is a fairly strong indicator that demand-pull inflation predominates and that interest rates ought to be raised, even if there is some cost-push inflation mixed into the overall inflation rate. But if the velocity of money is sluggish, raising rates will likely be counterproductive, at least in the absence of massive deficit spending (i.e. new money creation).
Because regardless of whether or not there is any link at all between interest rates and the actual supply of money, raising rates (especially when raised higher than the inflation rate) will always slow down the velocity of money, ceteris paribus. Likewise, cutting interest rates accelerates the velocity of money at least somewhat, even if that alone doesn't always stimulate the economy enough in practice.
So what about taxes, then? In theory, raising taxes and/or cutting government spending should also control inflation by effectively shrinking the money supply. Remember, since the federal government is Monetarily Sovereign, any tax revenue they raise is effectively destroyed in practice (just like how all deficit spending effectively creates money out of thin air). But this is a very crude way to do it, and is too slow and political to be particularly useful. That said, having some level of federal taxation can indeed act as an "automatic stabilizer" even with no changes to the tax code, since when the economy overheats, the velocity of money is high and thus more tax revenue is removed from the economy, while the reverse is true during recessions when the the velocity of money is slower. That is especially true for the idea of the Universal Exchange Tax, since it specifically taxes the movement of money, but can be true for all taxes. But interest rate control is ultimately a superior method--as long as the inflation in question is the demand-pull variety resulting from an excessive money supply and/or velocity of money. And knowing that, there is no good reason why a Monetarily Sovereign government should be shy about creating enough money to fulfill any of its ambitions that benefit the the bottom 99%.
The best, of course, is when interest is NOT coupled to the creation of money. But until they end the charade and implement Overt Congressional Funding instead, and also fully nationalize the FERAL Reserve, the best way to fight stagflation is to raise interest rates (to fight inflation) while also increasing deficit spending (to fight stagnation), effectively decoupling the two for the time being. And to fight high inflation in an overheating economy, raise interest rates first with no changes to deficit spending, and if that doesn't work, then reduce deficit spending. But don't keep interest rates too high for too long--eventually they need to be cut to avoid doing more harm than good to the economy. And note also that there is no historical correlation between deficit spending and inflation, at least not during peacetime and post-gold standard. Only during truly major wars has there been any sort of correlation between the two, given how wars tend to create shortages of goods and services.
Wait, what? That's right, there has been no correlation between federal deficit spending (i.e. money creation) and inflation in recent decades, meaning that any relationship between the money supply per se and inflation is a very tenuous one. Let that sink in for a moment. So we are nowhere near the point where increasing the money supply poses any risk of runaway inflation. And even if we were, we know precisely how to prevent and cure it.
In other words, it looks like both Rodger Mitchell and Ellen Brown are both correct to one degree or another. But what about what the FERAL Reserve is doing right now, raising interest rates (and implementing Quantitative Tightening) in the midst of historically high deficit spending? Well, seeing as how inflation is still low and currently dominated by oil prices and the Trump tariffs that are just beginning to bite, it is safe to say that cost-push inflation, not demand-pull inflation, thus predominates now and in the near future, and thus raising interest rates any further now is probably not the wisest idea. Especially given that, as Ellen Brown notes, the banksters have currently set a minefield of trigger points for variable-rate loans and mortgages, that will be set off if the Fed Funds Rate goes up much higher. And these oligarchs thus stand to pull off one of the greatest wealth transfers in history, from the bottom 99% to the top 1% and especially the top 0.01% (i.e. to the oligarchs themselves).
Bottom line: While taxes are more of a blunt instrument when used to control inflation, interest rates are essentially a razor-sharp, double-edged sword, one that we need to be very careful about using willy-nilly. Don't say we didn't warn you.
Well, it seems that the answer is a lot more nuanced than either side likes to believe. For starters, there are at least two different kinds of inflation: 1) cost-push inflation, and 2) demand-pull inflation. Sometimes both types occur together almost equally, other times one clearly outweighs or excludes the other. And whether raising interest rates is helpful or harmful depends on exactly which kind of inflation one is trying to fight.
For cost-push inflation, which is caused by rising production costs resulting from things like higher fuel prices, taxes, or borrowing costs on businesses that get passed onto consumers. And raising interest rates will only make that kind of inflation worse by increasing borrowing costs for businesses even higher still. Doing so is like fighting fire with gasoline, and should generally be avoided like the plague.
For demand-pull inflation, which is caused by demand for goods and services outstripping supply for same, on the other hand, raising interest rates is highly effective at preventing and curing such inflation. If interest rates are (artificially) coupled to money supply, raising the former will effectively shrink the latter, which is of course disinflationary or deflationary. But even more importantly, whether they are coupled to the money supply or not, raising interest rates also increases the demand for dollars by increasing the reward for holding them. Remember, as Rodger Mitchell explains, Value = Demand/Supply, and Demand = Reward/Risk, where inflation and default are the risks and interest is the reward.
(Since the risk of default is by definition zero for a Monetarily Sovereign government that consistently acts like it and is not foolish enough to borrow money denominated in a foreign currency, that leaves only inflation vs. interest. And the net reward is given by: Interest Rate - Inflation Rate = Real Cost of Money.)
Note too that interest rates can have both types effects, but which one outweighs the other depends on the type of inflation as well as the general condition of the overall economy. At the same time, the effects of raising and lowering interest rates need not be symmetrical, since lowering interest rates to stimulate the economy often amounts to "pushing on a string" in terms of effectiveness. Especially since interest on Treasury securities is literally new money that is pumped into the economy, and lowering rates will reduce that money accordingly. True, there is in fact a positive correlation between the effective Fed Funds Rate and the CPI inflation rate, but that is as much of a chicken-and-egg problem as anything, given that the two types of inflation are both measured the same way, and that the FERAL Reserve usually raises rates in response to or in anticipation of inflation. (For all their faults, they have generally succeeded in keeping inflation more or less under control at least since the post-gold standard era.)
But how exactly does one distininguish which type of inflation predominates at a given time, and thus whether to raise or lower interest rates? Usually it is fairly simple. When the velocity of money (the rate at which money circulates through the economy) is going "too fast for conditions" relative to the economy, that is a fairly strong indicator that demand-pull inflation predominates and that interest rates ought to be raised, even if there is some cost-push inflation mixed into the overall inflation rate. But if the velocity of money is sluggish, raising rates will likely be counterproductive, at least in the absence of massive deficit spending (i.e. new money creation).
Because regardless of whether or not there is any link at all between interest rates and the actual supply of money, raising rates (especially when raised higher than the inflation rate) will always slow down the velocity of money, ceteris paribus. Likewise, cutting interest rates accelerates the velocity of money at least somewhat, even if that alone doesn't always stimulate the economy enough in practice.
So what about taxes, then? In theory, raising taxes and/or cutting government spending should also control inflation by effectively shrinking the money supply. Remember, since the federal government is Monetarily Sovereign, any tax revenue they raise is effectively destroyed in practice (just like how all deficit spending effectively creates money out of thin air). But this is a very crude way to do it, and is too slow and political to be particularly useful. That said, having some level of federal taxation can indeed act as an "automatic stabilizer" even with no changes to the tax code, since when the economy overheats, the velocity of money is high and thus more tax revenue is removed from the economy, while the reverse is true during recessions when the the velocity of money is slower. That is especially true for the idea of the Universal Exchange Tax, since it specifically taxes the movement of money, but can be true for all taxes. But interest rate control is ultimately a superior method--as long as the inflation in question is the demand-pull variety resulting from an excessive money supply and/or velocity of money. And knowing that, there is no good reason why a Monetarily Sovereign government should be shy about creating enough money to fulfill any of its ambitions that benefit the the bottom 99%.
The best, of course, is when interest is NOT coupled to the creation of money. But until they end the charade and implement Overt Congressional Funding instead, and also fully nationalize the FERAL Reserve, the best way to fight stagflation is to raise interest rates (to fight inflation) while also increasing deficit spending (to fight stagnation), effectively decoupling the two for the time being. And to fight high inflation in an overheating economy, raise interest rates first with no changes to deficit spending, and if that doesn't work, then reduce deficit spending. But don't keep interest rates too high for too long--eventually they need to be cut to avoid doing more harm than good to the economy. And note also that there is no historical correlation between deficit spending and inflation, at least not during peacetime and post-gold standard. Only during truly major wars has there been any sort of correlation between the two, given how wars tend to create shortages of goods and services.
Wait, what? That's right, there has been no correlation between federal deficit spending (i.e. money creation) and inflation in recent decades, meaning that any relationship between the money supply per se and inflation is a very tenuous one. Let that sink in for a moment. So we are nowhere near the point where increasing the money supply poses any risk of runaway inflation. And even if we were, we know precisely how to prevent and cure it.
In other words, it looks like both Rodger Mitchell and Ellen Brown are both correct to one degree or another. But what about what the FERAL Reserve is doing right now, raising interest rates (and implementing Quantitative Tightening) in the midst of historically high deficit spending? Well, seeing as how inflation is still low and currently dominated by oil prices and the Trump tariffs that are just beginning to bite, it is safe to say that cost-push inflation, not demand-pull inflation, thus predominates now and in the near future, and thus raising interest rates any further now is probably not the wisest idea. Especially given that, as Ellen Brown notes, the banksters have currently set a minefield of trigger points for variable-rate loans and mortgages, that will be set off if the Fed Funds Rate goes up much higher. And these oligarchs thus stand to pull off one of the greatest wealth transfers in history, from the bottom 99% to the top 1% and especially the top 0.01% (i.e. to the oligarchs themselves).
Bottom line: While taxes are more of a blunt instrument when used to control inflation, interest rates are essentially a razor-sharp, double-edged sword, one that we need to be very careful about using willy-nilly. Don't say we didn't warn you.
Thursday, August 2, 2018
The Big Lie of Economics
Big Lies have a very long history indeed. As the infamous Nazi propaganda minister Joseph Goebbels (who knew quite a thing or two about lying) noted, the bigger and dumber the lie is, the more likely people are to believe it. And you know what, it works. Counterintuitive, perhaps, but true nonetheless.
So what if some politician, pundit, academic, or activist were to make the following claims, which you probably have heard over and over again, ad nauseam? Would you believe them? Here goes:
- Federal taxes pay for federal spending, and any shortfall in revenues (i.e. "deficit spending") must be made up by the federal government borrowing money to cover the deficit.
- It must be this way, because otherwise the federal government will run short of dollars, which are finite.
- The federal government is literally bankrupt and can no longer afford to keep paying for Social Security, Medicare, and Medicaid, let alone anything more ambitious and progressive.
- Things like Universal Basic Income (UBI), tuition-free public college for all, state-of-the-art infrastructure, and single-payer Medicare For All sound like good ideas on paper, but we literally can't get the numbers to add up. Sorry. Oh well.
- If the national debt as a percentage of GDP rises above some arbitrarily high level, the federal government will have no choice but to default.
- Thus, we will have no choice but to accept an austerity "menu of pain" at this point, both large tax hikes and/or deep spending cuts. (Austerity for the bottom 99%, that is.)
So why do they borrow, if they don't really need to? First, it is due to one of several arcane and archaic rules left over from when we actually had the gold standard, which we haven't had since 1971*, that requires matching spending with either taxes or borrowing. Secondly, federal government borrowing is simply issuing Treasury securities, which are in practice really a fancy kind of national savings account rather than "debt" as the term is usually understood. And those Treasury securities are a safe haven for investors that helps to stabilize the financial system, and also provides a handy platform for the government to control interest rates. So Congress could simply pass a law changing the rules and implement Overt Congressional Funding instead, thereby completely decoupling spending, borrowing, and taxes, while still allowing investors to park their money in Treasury securities if they so choose.
Oh, and how about taxes then? Where exactly does all of that money go? Well, that is where it really gets, um, interesting to say the least. (Sit down before you read any further.) For practical purposes, all of those trillions of federal tax dollars each year get....DESTROYED upon receipt. Yes, you read that right, DESTROYED. Since the federal government by definition has an infinite amount of money since they can create it at will by fiat, taking money from We the People is like bringing coals to Newcastle only to destroy them. Of course, due to those arcane and archaic rules, the money does not get destroyed immediately, but rather it first makes a brief pit stop at the privately-owned FERAL Reserve. But the end result is exactly the same nonetheless.
(In contrast, state and local governments are NOT Monetarily Sovereign, so they must either raise taxes or borrow money in order to spend, and their tax dollars are deposited in private bank accounts prior to spending them. Ditto for the Euro nations as well.)
That does not meant that federal taxes are entirely useless, however. For one, they can be used to give the official currency "teeth" by compelling its use to pay such taxes and not accepting any other currency as payment for such taxes. They also function as a useful tool for social engineering that is difficult or impossible to do otherwise (think vice taxes and Pigouvian taxes, as well as taxes on the ultra-rich) as well. And they can also act as a (rather crude) tool for inflation control as well, by being a sort of "automatic stabilizer" when the economy overheats. But paying for federal spending and servicing the national debt? If you believe that we need to actually take money out of the economy to pay for that which the government can literally just create out of thin air, well, we've got a nice bridge we'd like to sell you.
Thus, it follows logically that the rest of the aforementioned list of lies are, well, lies all the same. Austerity (which does far more harm than good) need not be on the menu any longer, and we can opt for truly shared American prosperity instead. And that means that all of the right-wing, neoliberal pack of lies about the economy also falls like the house of cards that it is. All of those things that both corporate parties claim that we cannot afford can now be ours. If only our politicians would just be honest for once (as tall an order as that may be).
Bottom line: Money is really nothing more than a tool. And like any tool, it can indeed be weaponized--in this case, by the oligarchs and their sycophantic lackeys in government against We the People. They use the con-tricks of austerity and artificial scarcity to systematically widen the Gap between the haves and have-nots (and between the have-mores and have-lesses). But it does not have to be this way at all, and in fact We the People can turn the tables on the oligarchs by electing honest representatives that know the true meaning of Monetary Sovereignty.
So what are we waiting for?
(Hat-tip to the ever-insightful Rodger Malcolm Mitchell, Alan Longbon, and Joseph M. Firestone, for all showing us the wisdom of Monetary Sovereignty and the related Modern Monetary Theory, respectively. Before first discovering their writings on the topic in 2018, even the TSAP had previously fallen for at least a few of the variations of the Big Lie above.)
*NOTE: The Gold Standard in the USA functionally ceased to exist when Nixon suspended convertability of dollars to gold in 1971. Though originally intended to be temporary, this "Nixon Shock" was made permanent in 1973, ending the Bretton-Woods System for good, and any remaining nominal link between dollars and gold (along with any restrictions on private gold ownership and trading) was subsequently removed from the law books by 1976. The United States Dollar is now a purely fiat currency and the federal government is now fully Monetarily Sovereign (even if they don't always act like it).
So what are we waiting for?
(Hat-tip to the ever-insightful Rodger Malcolm Mitchell, Alan Longbon, and Joseph M. Firestone, for all showing us the wisdom of Monetary Sovereignty and the related Modern Monetary Theory, respectively. Before first discovering their writings on the topic in 2018, even the TSAP had previously fallen for at least a few of the variations of the Big Lie above.)
*NOTE: The Gold Standard in the USA functionally ceased to exist when Nixon suspended convertability of dollars to gold in 1971. Though originally intended to be temporary, this "Nixon Shock" was made permanent in 1973, ending the Bretton-Woods System for good, and any remaining nominal link between dollars and gold (along with any restrictions on private gold ownership and trading) was subsequently removed from the law books by 1976. The United States Dollar is now a purely fiat currency and the federal government is now fully Monetarily Sovereign (even if they don't always act like it).
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