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The measure of an economy is
money.
A large
economy
has a larger supply of
money
than does a small
economy.
Therefore, to grow an economy requires a growing supply of
money.
Every form of
money
is a form of debt.
Therefore, a growing economy requires a growing supply of debt.
What is
stagflation?
What cures
stagflation?
What cures
inflation,
recessions,
depression?
What is the one
solution
to Social Security and
Medicare
problems that does not include raising
taxes
or cutting benefits?
In recent years, our leaders, following popular wisdom, have given us two
recessions,
inflations,
a savings and loan crisis, Freddie Mac, Fannie Mae, IndyMac and many other bank failures, predicted failures of
Social Security
and
Medicare,
oil crises and confusing additions to an unfair, byzantine
federal tax
code.
The media, the politicians and many experts like to blame the victims. They tell us these problems are our fault. We use too much gas; we buy homes we can't afford; we don't plan for our futures; we engage in "irrational exuberance" (per Alan Greenspan).
They are wrong. The problem is with our leaders. Every situation mentioned above could have been prevented and still can be cured, if our leaders take appropriate action.
FREE MONEY shows you how.
"When an author puts himself on the line by embracing an unfashionable idea, even though he is guaranteed to generate scorn or indifference, this should somehow be recognized."
Kary B. Mullis, Nobel laureate
"If at first an idea does not sound absurd, then there is no hope for it."
Albert Einstein
"Conventional wisdom often is wrong." Steven D. Levitt and Stephen J. Dubner, Authors of FREAKONOMICS
"To swim against the current of human intuition is a difficult task." Leonard Mlodinow, Author of THE DRUNKARD'S WALK
Discovery begins when popular wisdom is questioned.
To fight
recessions
the Fed cuts interest
rates.
To fight
inflations
the Fed does the opposite. It raises interest
rates. That is the popular wisdom.
But
recession
is not the opposite of
inflation
(The opposite of
inflation
is
deflation).
When we have
stagflation
(the combination of
inflation
and
recession)
the Fed becomes paralyzed. It is unable to use its primary tool, interest
rate
control, to cure both
inflation
and
recession.
During
recessions,
the U.S. economy is starved for money. The $150 billion stimulus package, at the start of 2008, was a too-small,
recession-fighting step -- an attempt to "feed" the economy the money it so desperately needed. While the idea was correct, the package should have been at least $500 billion, and $1 trillion would have been better.
Meanwhile, the presidential candidates spoke of balancing the federal budget, which under those circumstances, would have caused a depression.
There is but one way to prevent and cure
stagflation:
Cure the
inflation
by raising interest
rates,
and cure the
recession
by pumping money into the economy via
federal deficit
spending.
FREE MONEY
will tell you how this plan can be implemented and why there is no other solution to
stagflation.
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By the start of 2008, Federal
debt
exceeded $9.4 trillion. The economy had fallen into
stagflation.
In a vain effort to stimulate the economy, the Fed repeatedly cut the discount rate, impacting all interest rates. Every 1% interest rate reduction cut $94 billion from federal interest payments (on T-bills, T-bonds and T-notes) to the economy. Meanwhile, Congress added $150 billion to the economy as an economic stimulus. To cure the
recession,
Congress added money to the economy, while the Fed cut it. To understand the full implications, please read
FREE MONEY.
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News stories:
"January 25, 2008; House leaders and the Bush administration reached agreement yesterday on a $150 billion economic stimulus package." Congress giveth.
"June 25, 2008: The House voted Wednesday to protect more than 20 million taxpayers in danger of being slapped with a tax increase averaging $2,300 because of the alternative minimum tax. House Democrats, insisting that fixing the AMT must not add to the federal deficit, inserted about $61.5 billion in new revenues." Congress taketh away.
In summary: Congress, recognizing the economy was in
recession
and starved for money, voted to send $150 billion into the economy, without raising taxes. Six months later, while we remained in
recession
and the economy remained starved for money, Congress refused to cut
taxes
without adding new
taxes.
FREE MONEY discusses this Congressional misunderstanding and contradiction of effort.
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Here is the train of logic that will help you predict our economy:
All forms of
money
actually are forms of debt. Currency, bank accounts,
money
market accounts, bonds and notes -- are both
money
and debt, differing only in liquidity. A dollar bill (a debt of the U.S. government) and a checking account (a debt of a bank) are quite liquid. A savings account (also a debt of a bank) is somewhat less liquid. Publicly traded bonds and notes are less liquid still, while bank CD's and real estate mortgages fall near the lower end of liquidity. All are forms of debt and
money.
Economies are measured by money. GDP is one of many economic measures, nearly all of which measure money. A larger economy has more debt/money than does a smaller economy. Therefore, to grow an economy requires a growing supply of debt/money.
For an economy to grow, the debt/money supply must exceed population growth, inflation and the current account deficit (net money flowing out of the U.S.). Example: Say you want GDP to grow 3%. If population grows 1%, inflation is 3% and the current account deficit is 1.4%, the supply of debt/money must grow about 8.7%. (1.01 x 1.03 x 1.014 x 1.03 = 8.7%).
The 6/08, federal debt was 9.4 trillion. A federal debt growth of 8.7% required a deficit of $800 billion +.
"The Bush administration . . . projected a deficit for all of 2008 of $410 billion." (Associated Press, 2/12/08.) Even zero economic growth required a deficit of more than $500 billion (1.01 x 1.03 x 1.014 x $9.4 trillion - $9.4 trillion = $500 billion).
The economy is more
complex
than one equation. Several factors affect economic growth. But fundamentally, total, per-capita, real debt/money growth is required for economic growth.
FREE MONEY provides a fuller explanation.
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Most people dislike our federal
tax
system: Complex, convoluted, byzantine, unfair, onerous, costly and inefficient. Many politicians have tried to "fix" the federal
tax
system, but the
solutions
have been equally complex, unfair, etc.
These attempts to fix
taxes
beg the question, are federal
taxes
really necessary? Is the answer so obvious and trivial, we don't need to ask the question? Is your reaction, "Of course, federal
taxes
are necessary. How else could the government pay its bills? And if federal
taxes
were not necessary, why have the world's greatest economists not eliminated taxes?"
By 1980, after 200 years of existence, America had built a federal debt below $1 trillion. Only 28 years later, federal debt had ballooned almost 900% to $9.4 trillion. If taxes are necessary how, in only 28 years, was the federal government able to spent more than $8.4 trillion dollars unsupported by
taxes?
Federal
taxes
are a relic from the days when money was backed by physical substances, like gold and silver. Because the supply of that collateral was limited, the government's ability to create money was equally limited, which necessitated levying
taxes.
Today's money no longer is backed by any physical asset. It is backed only by "full faith and credit," which the government has in unlimited supply.
The question, "Are federal
taxes
really necessary?", neither is obvious nor trivial. It may be the most important question in modern economics. It is discussed in
FREE MONEY.
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Economics is complex, though many lay people believe they understand
economics through intuition. The same people who admit they don't understand physics, chemistry or paleontology, will have strong opinions about
economics, though
economics is easily as complex as any other science.
Do you believe the
federal debt
is "too high" and that our children and grandchildren will have to pay it? Or that
Social Security and
Medicare, could go bankrupt? Or that a federal surplus benefits the U.S. economy and large federal debt makes borrowing more difficult? Or that cutting interest rates stimulates the economy?
These beliefs are widely accepted, yet, the evidence does not support these beliefs.
Belief without evidence is not science. It is religion.
Economics
has become a religion. It sports high priests (Nobel winners), rote recitals of theory without supporting data, unquestioning followers, unsuccessful predictions, excessive attention to minutia, lack of experimentation, resistance to change, anger at nonbelievers.
Our economy lurches from boom to recession and back, while those responsible preach that we are responsible for our economic problems. Like shamans they speak in tongues (Chairman Greenspan was especially good at this) and repeatedly take futile actions
(i.e. promise surpluses)
to prove they are doing something. Yet they neither control the present nor predict the future. Their rain dances (interest rate cuts) do not bring rain (economic stimulus), yet the ritual never changes.
Perhaps you have tired of our leaders' excuses for their failure to protect us. Perhaps you are uneasy with the boom/bust, uncontrolled wanderings of our economy, and would like to learn how we can create an enduring, controllable prosperity. If so, you will enjoy reading
FREE MONEY.
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Please click the cover to see excerpts from FREE MONEY.
Questions? Ask the author, Rodger Malcolm Mitchell at:
rmmadvertising@yahoo.com
April 4, 2008
Do you remember these headlines: "Employers slashed 80,000 jobs in March." "The U.S. central bank has lowered
rates
by 3 percentage points since mid-September" "The loss of jobs signals another interest
rate
cut by the Federal Reserve later this month." "Federal Reserve Chairman Ben Bernanke acknowledged Wednesday that the country could be heading toward a
recession, saying federal policymakers are 'fighting against the wind' in combating it."
The Fed is lost.
Rate cut after
rate cut has done nothing. So what is the Fed's plan? Another
rate cut. During the previous
recession,
the Fed also attempted
rate cut after
rate cut, to no avail. The
recession, finally ended with the Bush
tax cuts. The Fed has not learned from experience, but stubbornly adheres to the popular wisdom that interest
rate cuts stimulate the economy.
Rate cuts do not stimulate the economy. They never have. They never will. Rate cuts stimulate inflation.
"Stimulating" an economy means making it larger. A large economy requires more money than does a smaller economy. Therefore, the only thing that stimulates the economy is the addition of money.
Rate cuts, by reducing the amount of interest the federal government pays, actually reduce the supply of money. We are on the edge of a
recession, because the economy is starved for money. The coming "stimulus" checks will help, but they are too little and too late. This should have been done months ago, and the amounts should be far larger.
The only way to prevent or cure a
recession: Federal deficit spending. There is no excuse for
recession or
inflation.
These problems are not
economic failures. They are leadership failures.
FREE MONEY tells what our leaders should do to prevent and cure stagflation.
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The Fed seems to operate under the theory: If something doesn't work, do it again; if something absolutely doesn't work, do it again and again. Chairman Greenspan repeatedly cut interest rates to stimulate the economy, without effect. Chairman Bernanke again repeatedly has cut rates, but this time there has been an effect: Inflation.
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-The
federal government budget
is too large?
-The
US national debt, deficit and spending are too high?
-Our children will pay the
federal debt
through higher
taxes?
-There is a
federal government budget crisis?
- Social Security
and
Medicare
might go bankrupt?
-High federal spending causes
inflation,
high
taxes
and/or high interest
rates?
-We can't afford
health insurance
or a good education for everyone?
-Cutting interest
rates
stimulates the
economy
and helps prevent a
recession?
-The
U.S. National debt
uses up investment funds?
-The Fed can cure
inflation
and
economic
stagnation
(stagflation)
, with interest rate control.
That is the popular wisdom.
Yet, historical data do not support any of these beliefs. When tenets are universally accepted, and especially when they disagree with history, the thinking person reexamines the faith.
FREE MONEY will give you the facts about money,
federal debt, the federal deficit,
Social Security,
Medicare, education and federal spending, inflation,
recession, depressions,
stagflation and
taxation.
The red bar shows the annual percentage change in Total U.S. debt, (U.S. federal debt, state and local government debt, plus personal and corporate debt). The green bar shows
the annual percentage change in GDP.
The yellow bar shows the annual percentage change in U.S. Federal Debt. Annual figures can be found at
http://www.federalreserve.gov/releases/z1/current/z1r-2.pdf.
The chart shows that changes in Total U.S. Debt parallel changes in GDP. When Total U.S. debt grows quickly, the economy prospers. When total U.S. debt grows slowly, the economy lags. The reason: Debt and money are synonymous terms.
All money is a form of debt. Total U.S. debt is a measure of money in our economy. A growing economy requires a growing supply of money, which means a growing economy requires a growing supply of Total U.S. debt.
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Please click the cover to see excerpts from FREE MONEY.
Questions? Ask the author, Rodger Malcolm Mitchell at:
rmmadvertising@yahoo.com
Why do we wait for
recession,
stagflation or
depression before we stimulate the economy? Why do we not stimulate the
economy
to prevent
recession,
stagflation and
depression?
Why is the government able to pay for the military but unable to pay for
Social Security and
Medicare?
The
recession has begun. If interest
rates continue to be cut
stagflation will follow. The formal
recession announcement awaits only the requisite two consecutive quarters of declining GNP (or whatever definition of "
recession" suits the politicians).
According to the January 21, 2008 Chicago Tribune, “Federal Reserve Board Chairman Ben Bernanke said, ‘fiscal action could be helpful’ (to ending the recession) if it is done right.”
The Tribune goes on to say, “The chief reason a fiscal stimulus will probably fail is that it’s so hard to time it properly. Bernanke pointed out, ‘Stimulus that comes too late will not help support
economic activity in the short term, and it could be actively destabilizing.’” The Tribune concludes its editorial with, “Even a well-designed fiscal stimulus has no more than an even chance of being worth the cost. A poorly designed one would surely be a waste.”
The Tribune believes adding money to the economy must be done in a certain way. They say it would be wasteful to “aid state governments” and “finance alternative energy.” Sadly, while the politicians and the media waffle, the recession is upon us.
Stagflation waits in the wings.
The Tribune and Bernanke act as though money stops with its first use. Wrong, Tribune. Wrong, Bernanke. To end the
recession, there are but two questions that need to be answered: How soon? And how much? How soon will we add money to the economy and how much will we add?
It doesn’t matter to the economy where the money initially goes. All money added to the economy, no matter where it begins, ends in the same places.
Visualize the government, in an attempt to end the
recession, giving $500 billion to just one person(!). Let’s call him "Mr. Lucky."
Mr. Lucky can spend the money, save the money or invest the money. If he spends the money, it will go to retailers, manufacturers and service providers, who in turn will spend the money, save the money or invest the money. The endless cycle will continue, spreading the money through the economy, ending
the
recession and preventing
stagflation.
If Mr. Lucky saves the money, he will put it in a bank, which will lend, spend, save or invest. Each of these actions will cause the money to go to retailers, manufacturers and service providers, who will initiate the endless cycle, circulate the money through the economy, ending the
recession and preventing
stagflation.
If Mr. Lucky invests the money, it will go to investment instrument holders, who will (you guessed it) spend, save or invest the money, thereby circulating it through the economy, ending the
recession and preventing
stagflation.
No matter what Mr. Lucky does with the money, short of burying it in his backyard, the money will circulate through the economy, which will end the
recession and prevent
stagflation.
After its first use, all money added to the economy spreads throughout the economy. To worry about the first use, when trying to end a
recession, is to have your priorities backwards. The key questions are: “How soon and how much?” The best answers are “Now” and “At least $500 billion to $1 trillion, and optimally more.” The government can use the money in specific, detailed ways, or it can spend lavishly on so-called "wasteful" projects. The result will be the same. The faster the money is injected, and the more money injected, the sooner and more robustly will the
recession end and the economy recover.
Pour water into a bathtub. No matter where you pour it, the tub fills. It's the same with money. No matter where you add it, the economy grows. So ladies and gentlemen, please stop dithering about where the money should go first. It doesn't matter to the
recession or the economy. You have only two questions to answer: How soon and how much? The rest is just posturing and indecision.
And oh, are you worried that adding money causes
inflation? Raise interest
rates. This always ends
inflation, and no, high interest
rates never have slowed business – but that’s the subject of another letter.
Rodger Malcolm Mitchell
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Much time and effort is expended searching for a "fair"
tax.
It is a futile search. All taxes always will be unfair.
(See
tax.)
The search should be for a way to eliminate taxes. FREE MONEY shows you how federal taxes and federal debt can be eliminated.
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There are 400+ federal agencies, including all the military agencies, all the Departments, and dozens you never have heard of. Expenditures for two, and only two, of these agencies, are limited by an earmarked
tax:
Medicare
and
Social Security.
When the military needs money to pursue the wars in Iraq and Afghanistan, Congress quickly votes hundreds of billions of dollars to this effort. No
tax
limits this budget.
When the economy needed a stimulus, Congress quickly voted $150 billion to this effort. There was no earmarked
tax
limiting this effort. When Freddie Mac and Fannie Mae ran into financial difficulties, the Treasury immediately gave them a blank check. No
taxes
were allocated for this effort. When Bear Stearns showed serious financial stress, the Federal Reserve Bank of New York stepped with a financial rescue package intended to keep the firm afloat.
When the FDIC was forced to take over IndyMac Bancorp, no new
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