The Real News Network has the interview Deficit Is Falling Because Of Government Austerity, Not Economic Recovery.  The interviewee is economist Stephanie Kelton.

Stephanie Kelton, Ph.D. is Associate Professor and Chair of the Department of Economics at the University of Missouri-Kansas City. She is also Editor-in-Chief of the top-ranked blog New Economic Perspectives and a member of the TopWonks network of the nation’s best thinkers. Her book, The State, The Market and The Euro (2001) predicted the debt crisis in the Eurozone, and her subsequent work correctly predicted that: (1) Quantitative Easing (QE) wouldn’t lead to high inflation; (2) government deficits wouldn’t cause a spike in U.S. interest rates; (3) the S&P downgrade wouldn’t cause investors to flee Treasuries; (4) the U.S. would not experience a European-style debt crisis.

But what would she know about the subject of the interview?  That last sentence is sarcasm on my part.  I know I have to explain these things to some of my readers.

Upon hearing this brief interview, I remarked to Sharon that the trouble with it is that you have to understand how the monetary system works to know why she is exactly right in what she says. I then read the viewer comments on the interview.

The following comment is typical:

These economists are always blowing smoke. If all that matters is having a “productive economy” and if the govt can really just mail out checks to people without ever worrying about where the money will come from “since America is the only country who can legally create dollars,” then please tell me, O Enlightened Economist, WHY do I have to write a really FAT check to the federal govt every quarter to cover my taxes? Assuming the “unlimited dollars” theory is sound then why does anyone have to pay taxes to the federal govt? Can’t they just create all the dollars they need?

And all the while that economists like this are blathering about their “unlimited dollars” theories of federal spending, citizens like myself who regularly write out checks to the IRS for tens of thousands of dollars know where that money is coming from–it’s coming from OUR damn pockets.

I replied to the comment to see if I could straighten the person out (silly me.)

If you would actually follow the flow of money through the economy, you would find that when you pay your tax dollars to the federal government, they essential rip up the money. The money they spend is new money that the government creates. The collection of federal tax dollars has a number of reasons to be necessary for the economy. Some MMTers believe that having to pay taxes in dollars is what makes the dollar accepted as money. (I don’t buy that argument too much, because there are lots of people in this world outside this country that do not pay US taxes, but still use the dollar as a means of paying debts and accepting payment of debts.) The ability to pull in dollars in taxes is also what allows the government to control how much money is available compared to the amount of goods available so that we don’t have run-away inflation.

With the FED creating $85 billion a month in Quantitative Easying to bail out the financial system, at some point the liquidity that is being pumped into the economy and not being put to use, will start to flow back into the economy. To prevent inflation at that point, this excess will have to be sucked back out in the form of excess of taxes over spending.

There is recorded testimony by Ben Berbanke before a Senate Committee. They asked him where he was getting all the money he was using to buy assets in the QE program. He answered very honestly, “We just create the money.” It was so amazing that these supposed expert Senators didn’t know that and equally amazing that they were flabbergasted at the answer.

The trouble with what Kelton said, is that you have to understand the theory behind her remarks to understand why her comments are exactly correct. In an 8 minute interview, she hardly had time to give you a semester’s worth of economic education.

To understand the diagram –

http://neweconomicperspectives…,

follow the links in my blog post – Diagrams and Dollars: Modern Money Illustrated (Part 1 & 2)

Credo Action has the web page Deadline: Tell Sec. Kerry: Keystone XL is NOT in our national interest.

Submit a comment right now to send the message that the “game over for the climate” Keystone XL pipeline is NOT in our national interest.

Not only is it not in our national interest, it is not in the world’s interest. I have heard it said that if we don’t build the pipeline, then someone else will make use of this oil.  Fine, let it be on someone else’s conscience, not ours.

If countries around the world see that Canada is having any trouble selling their particularly environmentally harmful oil, then maybe it will give them just a moment’s pause before they embark on a similar project.  It would be a start. Even a moment’s pause us better than no pause.

This is coming from one who considered investing in tar sands oil projects years ago, but was too afraid that the investment was already overpriced.  I didn’t know about the environmental implications at the time.

The UK Guardian has the story Venezuela protests: the other side of the story.

We hear from Venezuelans who did not take part in the recent anti-government demonstrations for their take on what’s happening in the country

I don’t claim that this is any more an authoritative view of what is going on than the reports you hear in our press.

It is worthwhile to consider that the protests like the Arab Spring that toppled the dictatorial governments in the middle east can also be used to topple democratically elected governments.  The CIA has a long history of using these kinds of protests to topple governments in South America that we don’t like.

Read the comments in the article, and try to see the possibilities for truth and lies on any side of the discussion.  If that doesn’t boggle your mind, I don’t know what will.  I guess the only answer is to retreat to your preconceived notions whatever they may be.  I have already decided that mine must be right.

Anne Gobi is running to replace retiring State Senator Stephen Brewer.

You can follow (and like) her on Facebook.

I have met Anne Gobi at a number of political affairs in Sturbridge and Wales lately.  She is very energetic. She speaks very candidly about what she has done (voted for) and why.  I have agreed with most, if not all, of the positions she has taken.  Even if there were some position that she had taken with which I did not agree (I don’t have any in mind), I think I would get from her a very reasoned explanation of why she decided to do what she did.

As an example, I had disagreed with the position that Senator Brewer took on Governor Deval Patrick’s transportation bill.  Anne explained to me what were the problems with the bill as presented, and why she voted (as a State Representative) a lower amount of money than the Governor had asked.  She felt that some of the money would be wasted because it covered mostly road construction without considering repairing some aged sewers and pipes that are beneath the road.  If those items had to be fixed later, we would have to tear up the roads that had just been rebuilt to fix them.  A more balanced bill that fixed both roads and some infrastructure underneath them would have been wiser.

She also felt that the bill was not well balanced between the needs of the eastern part of the state and the central and western parts.

There were other reasons she didn’t support the bill, but the two I stated are the ones that resonated with me the most and that I wanted to mention here.  Overall, I thought she made some excellent points, and none of what she said was less than reasonable.

The Daily Show with Jon Stewart has the segment Denunciation Proclamation.

Andrew Napolitano questions the economic underpinnings of the Civil War and Lincoln’s legacy, but Larry Wilmore argues that tea isn’t the only black thing worth fighting for.

Maybe I am just dense, but I had to hear for a second time the part about “It’s immoral for the government to reach into your pocket and rip away your money from its warm home…”, to get the fabulous point that Wilmore was making.

The Real News Network has a two part interview starting with the segment titled Venezuela Protests Reveal Rivalry in Opposition Leadership.

This part of the interview has more to do with analysis of the political situation. There is plenty of room to wonder if the source is completely unbiased. Well, what source is completely unbiased? So take it for whatever you can make out of it. It’s not like what the interviewee is saying is so  unbelievable. It’s just that if you didn’t want to believe what he is saying, you could find your reasons not to.

The second segment is titled Why is Inflation So High in Venezuela?

If you see the interview on The Real News Network Why Is The 2008 Crisis Taking So Long To Resolve?, you find that the low interest rates in the US caused by the Fed’s quantitative easing caused capital flight from the US to emerging markets that paid higher interest. Now with the Fed tapering its QE, some of the capital that went to emerging markets is being returned to the US causing capital flight from the emerging markets.

So at least a part (and I do not know how big a part) of the emerging market capital flight is caused by external factors beyond their control.  Even the countries without the Venezuelan inflation are experiencing problems.  I am sure that the historical base Venezuelan inflation rate only makes things worse for Venezuela.

This is a very complicated situation, and it is not going to be explained in one 15 minute interview with people who may not have an eye on the situation in all the parts of the world that are interacting with Venezuela.  The two part interview that is the subject of this post was conducted by Paul Jay.  The interview about the 2008 crisis was conducted by Lynn Fries.  Both interviews were watched by me, so I may have a bit of an advantage in connecting the two stories that the interviewers conducting these two interviews may not have.

Moreover, the actual key piece of information might not have been in the Lynn Fries interview, but was actually in the paper written by the interviewee, “The Uncertain Future of the World Economy.” Lynn Fries probably read the paper, but Paul Jay may not have seen it.

The key paragraph from that paper started with “The normalisation of monetary policy in the U.S. will also cause problems for emerging economies.”  See the end of my previous blog post.

This question comes from reading the New Economic Perspectives article America’s Deceptive 2012 Fiscal Cliff – Part 4.  The title of the article does not come close to doing it justice.

To celebrate this as a “postindustrial society” as if it is a new kind of universe in which everyone can get rich on debt leveraging is a deception. The road leading into this trap has been baited with billions of dollars of subsidized junk economics to entice voters to act against their interests. The post-classical pro-rentier financial narrative is false – intentionally so. The purpose of its economic model is to make people see the world and act (or invest their money) in a way so that its backers can make money off the people who follow the illusion being subsidized. It remains the task of a new economics to revive the classical distinction between wealth and overhead, earned and unearned income, profit and rentier income – and ultimately between capitalism and feudalism.

Before I finished reading this article, I had provided a link to it in my previous post What Should We Tax? In that article, I had focused on part 3 of the fiscal cliff series.  I knew that part 4 had more discussion of a wealth tax, but I had no idea that it would be such a strong indictment of the current system.

Above, I only quote the conclusion.  If I had space to include enough of the article’s justification for this conclusion, steam would be coming out of your ears as you read it.  Rather than waste that head of steam here, follow the link to read the article.  You can then marvel at how successfully we as a civilization have been made to forget what we used to know.

I was researching what the Modern Monetary Theorists would think about a wealth tax.  It lead me to the New Economic Perspectives article America’s Deceptive 2012 Fiscal Cliff – Part 3.

Why tax the economy at all? And why financial and tax reform should go together.

Taxes pay for the cost of government by withdrawing income from the parties being taxed. From Adam Smith through John Stuart Mill to the Progressive Era, general agreement emerged that the most appropriate taxes should not fall on labor, capital or on sales of basic consumer needs. Such taxes raise the break-even cost of employing labor. In today’s world, FICA wage withholding for Social Security raises the price that employers must pay their work force to maintain living standards and buy the products they produce.

However, these economists singled out one kind of tax that does not increase prices: taxes on the land’s rental value, natural resource rents and monopoly rents. These payments for rent-extraction rights are not a return to “factors of production,” but are privatized levy reflecting privileges that have no ongoing cost of production. They are rentier rake-offs.
.
.
.
If the rise in real estate prices (mainly site values) had been taxed, there would have been no financial overgrowth, because this price-gain would have been collected as the tax base. The government would not have needed to tax labor either via income tax, FICA wage withholding or consumer sales. And taken in conjunction with the government’s money-creating power, there would have been little need for public debt to grow. Taxing rent extraction privileges thus would minimize debt levels and taxes on the 99%.
.
.
.
Today’s central financial problem is that the banking system lends mainly for rent extraction opportunities rather than for tangible capital investment and economic growth to raise living standards. To maximize rent, it has lobbied to untax land and natural resources. At issue in today’s tax and financial crisis is thus whether the world is going to have an economy based on progressive industrial democracy or a financialized and polarizing rent-extracting society.

It may take a while to digest this article and separate our preconceived notions.  Also we have to be careful to not confuse the technical term “rent” from our everyday usage.

Wikipedia has the definition of Economic rent.

In economics, economic rent is an analytic term for the portion of income paid to a factor of production in excess of its opportunity cost. Economic rent should not be confused with the more common term rent; a payment for the temporary use of a good or property.

This definition uses some economics terms that require their own definition before you can fully understand the definition of economic rent.  So rather than go down this rat hole, suffice it to say that economic rent is not the same as the rent we think of when we rent an apartment.

The article does call into question the tax payers rebellion against increasing real estate taxes based on the artificially inflated values of said real estate.  Perhaps we tax payers got hit with the unintended consequences of the success of our rebellion.  As usual, we were tricked into rebelling against the wrong people.  We all had visions of getting filthy rich on real estate – especially in places like California – just like many people now think that they might someday be rich like the 1% are.  Instead, with the fall of real estate values from their inflated values, our mortgaged real estate ownership is feeling more like the proverbial albatross around our necks.

Read on to America’s Deceptive 2012 Fiscal Cliff – Part 4.

But the landowning and financial classes fought back, seeking to expunge the central policy conclusion of classical economics: the doctrine that free-lunch economic rent should serve as the tax base for economies seeking to be most efficient and fair. Imbued with academic legitimacy by the University of Chicago (which Upton Sinclair aptly named the University of Standard Oil) the new post-classical economics has adopted Milton Friedman’s motto: “There Is No Such Thing As A Free Lunch” (TINSTAAFL). If it is not seen, it has less likelihood of being taxed.

The political problem faced by rentiers – the “idle rich” siphoning off most of the economy’s gains for themselves – is to convince voters to agree that labor and consumers should be taxed rather than the financial gains of the wealthiest 1%. How long can they defer people from seeing that making interest tax-exempt pushes the government’s budget further into deficit? To free financial wealth and asset-price gains from taxes – while blocking the government from financing its deficits by its own public option for money creation – the academics sponsored by financial lobbyists hijacked monetary theory, fiscal policy and economic theory in general. On seeming grounds of efficiency they claimed that government no longer should regulate Wall Street and its corporate clients. Instead of criticizing rent seeking as in earlier centuries, they depicted government as an oppressive Leviathan for using its power to protect markets from monopolies, crooked drug companies, health insurance companies and predatory finance.

I am just starting to read this part myself.

The Real News Network has the interview they have titled US Backing the Destabilization of Venezuela.  Ok, so maybe the title is a little misleading, but the actual interview is straight forward.  Maybe the US Government isn’t directly involved in the destabalization (the headline never said government), but other forces in the US are probably involved.

Here I quote the bio of the interviewee.

Keane Bhatt is a Washington, D.C.-based activist and writer, and a contributing editor to the North American Congress on Latin America. He has worked in the United States and Latin America on a variety of campaigns related to community development and social justice. His analyses and opinions have appeared in a range of outlets, including NPR.org, The Nation, The St. Petersburg Times, CNN En Español and Al Jazeera. He is the author of the NACLA blog “Manufacturing Contempt,” which critically analyzes the U.S. press and its portrayal of the hemisphere.

I’ll quote just the positive comments about the Venezuelan situation from the interviewee.  I’ll llet you view the interview or read the transcript to swee and hear the other parts.

If you look at unemployment, it’s at a very low point. It’s about, you know, 6 percent. If you look at poverty from 2011 to 2012, Venezuela presided over the sharpest decline in poverty throughout the entire region. So it fell by 19 percent in 2013. Despite the problems of inflation and so on, you have further reductions in the rate of household poverty. So that fell by an entire percentage point over 2013, despite the inflation.

So what you’re seeing is a portrayal of Venezuela as some kind of a chaotic economic basket case. But when you look at a lot of the macroindicators, you’ve had real respectable per capita income growth. Over the past decade it’s been at about 2.7 percent annually. Again, you know, if you look at this historically, poverty has been slashed by half, absolute poverty by 70 percent. The inequality has been reduced so drastically that it’s now the lowest in Latin America.

And to give you a historic perspective, the inflation problems that beset Venezuela now are nothing like the inflation that predates the Chávez era, in which it was much, much higher.

So what you’re seeing is a very distorted and false rendering of what’s taken place in Venezuela during the Chávez years, and even during the Maduro years

If you think only this guy and The Real News Network feel this way about the situation, I have looked up the newspaper story whose image is shown in the video.

The UK Guardian has the story Sorry, Venezuela haters: this economy is not Greece of Latin America.

But how can a government with more than $90bn in oil revenue end up with a balance-of-payments crisis? Well, the answer is: it can’t, and won’t. In 2012 Venezuela had $93.6bn in oil revenues, and total imports in the economy were $59.3bn. The current account was in surplus to the tune of $11bn, or 2.9% of GDP. Interest payments on the public foreign debt, the most important measure of public indebtedness, were just $3.7bn. This government is not going to run out of dollars. The Bank of America’s analysis of Venezuela last month recognised this, and decided as a result that Venezuelan government bonds were a good buy.

On the web page where this article is being displayed are links to other stories from Venezuela that I am going to read. You might also be interested in them.

I think the whole upshot of this post is that, you, too, may be wondering how could Venezuela be having these problems if the Chavez government had not really been nearly as bad as it has been portrayed in the US noise media?  This seems to show that if the US noise media had been deceiving us before, it is quite possible that they are at it again.

If you follow some of the links at The Guardian, the picture gets a little cloudy.

There is the story Venezuela’s poor join protests as turmoil grips Chávez’s revolution.

The poor neighbourhood of Petare in western Caracas is not an obvious hotbed of anti-government sentiment. In the past, its residents have been among the major beneficiaries of Venezuela’s public health and education campaigns, and an economic policy that resulted in one of the sharpest falls in inequality in the world.

But as demonstrations sweep several major cities, even the people of Petare have taken to the streets to protest again surging inflation, alarming murder rates and shortages of essential commodities.

There is also the story Venezuela protests: demonstrators tell us why they’re taking part.

We asked protesters in Venezuela why they have taken part in the anti-government demonstrations. Here is a selection of their views.

If you read the 4 selections, you find that they are all anti-government.  Of course, if these are anti-government protests, that is what you would expect.  (I naively thought that there might be some responses from pro-government demonstrators.)

Of course, we can rationalize either side as being closer to the truth, but we have no real way of knowing.  When the CIA or the powerful multi-national corporations want to foment regime change, they are usually pretty good at covering their tracks or at least having plausible deniability. Still, this observation doesn’t prove anything, one way or another.

To add to the rationalizations, there is a little gem buried in my previous post Why Is The 2008 Crisis Taking So Long To Resolve?

As the Fed has got closer to ending the QE3 and the long-term U.S. rates have edged up, strong downward pressures have started to build up on the currencies, stocks and bonds of several emerging economies such as Brazil, India, South Africa and Turkey, which were widely seen as rising stars only a couple of years ago.

If you follow the trail of where this quote came from and an even older post than that, Tapering of Quantitative Easing Is Throwing Emerging Markets into Chaos, you might see another possibility of the unintended consequences of US policy having very harmful effects on emerging economies. Anyone unaware of this connection could blame the problems on those emerging economies rather than the U.S.

As you read the story of Venezuela’s economic problems, you might want to keep in mind the article from New Economic Perspectives MMT AND EXTERNAL CONSTRAINTS. (MMT is Modern Money Theory.)

To Fix or To Float, that is the question.

MMT argues that a sovereign government that issues its own “nonconvertible” currency cannot become insolvent in terms of its own currency. It cannot be forced into involuntary default on its obligations denominated in its own currency. It can “afford” to buy anything for sale that is priced in its own currency. It might be able to buy things for sale in foreign currency by offering up its own currency in exchange—but that is not certain.

If, instead, it promises to convert its currency at a fixed price to something else (gold, foreign currency) then it might not be able to keep that promise. Insolvency and involuntary default become possible.

As I read the story of Venezuela, I think it looks like Venezuela has tried to fix their currency rather than float it.  They may be learning that they just cannot do that.