Government Spending Cuts And The Economics Of Money And Banking

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President J. F. Kennedy had a great economic adviser, Walter Heller, from Columbia University. In 1960 Heller was making $21,000 a year working for Columbia University, and he took a cut in pay to $17,000 -- to be President Kennedyís advisor. Kennedy argued against spending cuts.

He was a MONEY AND BANKING economist, who was against any spending cuts during times of recession. There are lots of other kinds of economists. God know who theses other guys are? Or worse, what kind of economics are these guys pushing? There were 300 -- so called -- economists who took an ad in the Wall Street Journal supporting Bush in 2,000.

Lately there are I think 200 or more -- so called -- economists pushing the Republican spending cuts deal.

Last night PBS did a piece on various so called economists in Europe and around the world, who predicted the fall of the EURO system -- all because of no spending cuts. None of them presented any MONEY AND BANKING ECONOMICS. Who are these guys?

Basic MONEY AND BANKING, is really easy to understand. itís only a 2 or 3 hour course based on a 3 point system. Kennedy was the FIRST president to run a SURPLUS ECONOMY. Then later President Clinton did it. Both Clinton and Kennedy used basic MONEY AND BANKING economic theory. Neither pulled us from a recession on the basis of spending cuts. It works and weíve proved it.

The Democrats and President Obama are surprisingly quiet about all the claims of the Tea Party Movement on spending cuts.

There was a Tea Party Movement in 1964 with Senator Goldwater, calling for spending cuts, running for President as the Republican Presidential Candidate. This guy wanted spending cuts to take the country back to the good old days before President Roosevelt. Instead of ignoring this as Obama has done, Kennedy answered every charge on spending cuts.

Government Spending too high -- compared to what? Government Assets compared to Government Liabilities? Kennedy showed with charts and graphs -- the Government is in much better shape than any corporation: that is, assets to liabilities ratio. And this is still true today.

Government Spending Cuts! Supposing we do, says Kennedy? For every $1.00 we cut in government spending, he argued publicly that it will result in a $4.00 net loss of MARGINAL NET TAX REVENUE. For every $1-million we save the tax payers in spending, there is a $4-MILLION correspondingly and directly proportional drop in MARGINAL TAX REVENUE. In order to understand this itís necessary to know MONEY AND BANKING ECONOMICS. Seems impossible? I explain briefly at the end of this article.

And when Kennedy proved this by producing his SURPLUS, the tea Party Movement dried up. It was the first SURPLUS in the history of the USA -- ever! Private industry doesnít rely on spending cuts alone to make a profit. Instead big business concentrates on revenue. After Kennedyís SURPLUS, the Tea Party Movement disappeared from USA politics for over 20 years until 1980 when Ronald Regan became President.

Please look at any basic college text on MONEY AND BANKING. Youíll love the reading. No need to study. Itís all common sense and reason. Kennedy explained all this to the public in speeches. And he used the third column from the left on the front page of the Wall Street Journal to get several MONEY AND BANKING ECONOMISTS published. These columns explained how government spending was affecting the US Economy. That is, in order for the Federal Government to get additional revenue, it depended on deficit spending -- to increase revenue.

Where are the MONEY AND BANKING ECONOMISTS on PBS and other news programs? The American People have a right to know! These TV Networks are now owned by Republicans -- strongly influenced by the Tea Party movement favoring spending cuts.

These networks should present the facts. There should be more MONEY AND BANKING ECONOMICS showing the specifics on spending cuts.

Every Republican President weíve had since President Regan has done spending cuts -- only to cause a massive recession. Hereís why!

What happens if the Republicans cut $100-million from the present budget today. First off our GROSS NATIONAL PRODUCTS dips by $100-million. Yes, everybody knows this.

The actual science of MONEY AND BANKING is dependent on a play of several factors like, DEMAND IN THE ECONOMY, MARGINAL PROPENSITY TO SAVE, MARGINAL PROPENSITY TO SPEND, MARGINAL PROFIT, MARGINAL TAX RATE, TILL MONEY in banks, etc, etc., etc.

Now lets see what the US Treasury loses in taxes. The PBS News Hour quoted Mark Shields as saying $1.60 of Federal Income is produced for every $1.00 of stimulus money. This was a long time ago. And there was no detail to support this claim. This figure of $1.60 MARGINAL INCOME GENERATED by the government for every $1.00 is way too conservative. I donít know what the actual figure is. But Iím guessing itís higher.

This is because $100-million in deficit spending will create a correspondingly and directly proportional increase in the GROSS NATIOANL PRODUCT of $1-Trillion. This is because the $100-million doesnít just stop once the government spends it. It keeps revolving in the economy until it all goes into savings and not lent out by the banks.

This additional GROSS NATIONAL PRODUCT represents MARGINAL SALES that never would have happened otherwise.

The profit in manufacturing on MARGINAL SALES can be as high as 80% in the auto industry -- because of the high tooling costs. Once that tooling cost is paid for, the MARGINAL EXPENSE of producing ONE SINGLE MARGINAL CAR is very low. In retailing the profit on MARGINAL SALES would only be about 40%.

This unbelievably high net profit is because an OPERATION RESEARCH ANALYSIS shows that there is no profit until sales reach a BREAKEVEN POINT. And when sales do reach that point, then the gross profit becomes the net profit. The average profit on all sales is much lower of course -- like only 5 to 20%. So the average MARGINAL PROFIT from MARGINAL SALES is probably around 50% for all areas of the economy.

So theoretically anyway $1-trillion in GROSS NATIONAL PRODUCT would generate $500-million in private sector MARGINAL PROFITS: that is, 50%. The MARGINAL Corporate Tax rate is 35%. This means that the US Government would lose $177-million in MARGINAL INCOME TAX REVENUE from big business alone.

But at the same time there are MARGINAL INCOME TAXES on personal income, at the federal, state and local level. Then there are stock dividends. Then what about sales taxes? Etc, etc, etc. My Republican Friends tell me that the tax burden is too high. I saw one study, which I believe is correct. In fact between federal, state and local taxes, the MARGINAL TAX RATE on GROSS NATIOANL PRODUCT on everything combined is about 40%. This means that all governments: federal, state and local governments would lose $400-million in taxes from the proposed $100-million in spending cuts.

GREAT the federal government saved $100-million in spending cuts. But what about the $400-million loss in MARGINAL TAX REVENUE, etc.? Mitch and the rest of his cohorts need an education in MONEY AND BANKING ECONMICS when it comes to spending cuts.

No wonder the Republicans run larger deficits than the Democrats. They do their spending cuts and lose all that tax revenue -- which forces the recessions.

What about a federal law to take this whole situation out of the hands of politicians. Give it to the FED.

Make a splash! Promote a national debate -- Obama against OíRiley! Better yet, debate Rush!

Kennedy would have carved them into little pieces. The concept of MONEY AND BANKING on spending cuts is so logical, even Obama could easily win these debates.

Or how about a law? Everybody elected to the House or Senate must pass a 3 hour course in MONEY AND BANKIING before they can vote. Lets make it a crime to cut spending during a recession. Letís make it a crime NOT to pay down the national debt the next time thereís a surplus.

News programs should be more specific about MONEY AND BANKING ECONOMICS on spending cuts. If we cut the 100-million, thereíll be another dip -- deeper in recession -- even worse.

Iím counting on you reader. Please write you representative and President Obama. Please tell the President he will have to personally sell this to the American people. JFK sold it to the American people. How else is it going to be sold. Tell the President to HIRE somebody like Columbia Universityís Walter Heller as the Presidential economic advisor.

MONEY AND BANKING ECONOMICS should be the BUZZ WORD in connection with spending cuts.

Doug Remington: Personal Web Page

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