In addition to mandatory private health insurance
premiums, we may soon be hit with a “mandatory
savings” tax and other belt-tightening measures urged
by the President’s new budget task force. These
radical austerity measures are not only unnecessary
but will actually make matters worse. The push for
“fiscal responr,
former head of the Government Accounting Office, to
spearhead a massive campaign to reduce the runaway
federal debt, which the Peterson/Walker team blames on
reckless government and consumer spending. The
Foundation funded the movie “I.O.U.S.A.” to amass
popular support for their cause, which largely
revolves around dismantling Social Security and
Medicare benefits as a way to cut costs and return to
“fiscal responsibility.”
The Peterson-Pew Commission on Budget Reform has
pushed heavily for action to stem the federal debt.
Bills for a budget task force were sponsored in both
houses of Congress. The Senate bill was narrowly
defeated, and the House bill was tabled; but that was
not the end of it. In Obama’s State of the Union
speech on January 27, he said he would be creating a
presidential budget task force by executive order to
address the federal government’s deficit and debt
crisis, and that the task force would be modeled on
the bills Congress had failed to pass. If Congress
would not impose “fiscal responsibility” on the
nation, the President would. “It keeps me awake at
night, looking at all that red ink,” he said. The
Executive Order was signed on February 17.
What the President seems to have missed is that all of
our money except coins now comes into the world as
“red ink,” or debt. It is all created on the books of
private banks and lent into the economy. If
there is no debt, there is no money; and private debt
has collapsed. This year to date, U.S. lending has
been contracting at the fastest rate in recorded
history. A credit freeze has struck globally; and
when credit shrinks, the money supply shrinks with it.
That means there is insufficient money to buy goods,
so workers get laid off and factories get shut down,
perpetuating a vicious spiral of economic collapse and
depression. To reverse that cycle, credit needs to be
restored; and when the banks can’t do it, the
government needs to step in and start “monetizing”
debt itself, or turning debt into dollars.
Although lending remains far below earlier levels,
banks say they are making as many loans as they are
allowed to make under existing banking rules. The
real bottleneck is with the “shadow lenders” – those
investors who, until late 2007, bought massive amounts
of bank loans bundled up as “securities,” taking those
loans off the banks’ books, making room for yet more
loans to be originated out of the banks’ capital and
deposit bases. Because of the surging defaults on
subprime mortgages, investors have now shied away from
buying the loans, forcing banks and Wall Street firms
to hold them on their books and take the losses. In
the boom years, the shadow lending market was
estimated at $10 trillion. That market has now
collapsed, leaving a massive crater in the money
supply. That hole needs to be filled, and only the
government is in a position to do it. Paying down the
federal debt when money is already scarce just makes
matters worse. When the deficit has been reduced
historically, the money supply has been reduced along
with it, throwing the economy into recession.
Another Look at the Budget Reform
Agenda
That raises the question, are the advocates of “fiscal
responsibility” merely misguided? Or are they up to
something more devious? The President’s Executive
Order is vague about the sorts of budget decisions
being entertained, but we can get a sense of what is
on the table by looking at the earlier agenda of
Peterson’s Commission on Budget Reform. The
Peterson/Walker plan would have slashed social
security entitlements, at a time when Wall Street has
destroyed the home equity and private retirement
accounts of potential retirees. Worse, it would have
increased the social security tax, disguised as
a “mandatory savings tax.” This added tax would be
automatically withdrawn from your paycheck and
deposited to a “Guaranteed Retirement Account” managed
by the Social Security Administration. Since the
savings would be “mandatory,” you could not withdraw
your money without stiff penalties; and rather than
enjoying an earlier retirement paid out of your
increased savings, a later retirement date was
being called for. In the meantime, your “mandatory
savings” would just be fattening the investment pool
of the Wall Street bankers managing the funds.
And
that may be what really underlies the big push to
educate the public to the dangers of the federal
debt. Political analyst Jim Capo discusses a slide
show presentation given by David M. Walker after the “I.O.U.S.A.”
premier, in which a mandatory savings plan was
proposed that would be modeled on the Federal Thrift
Savings Plan (FSP). Capo comments:
“The FSP, available for federal employees like
congressional staff workers, has over $200 billion of
assets (on paper anyway). About half these assets are
in special non-negotiable US Treasury notes issued
especially for the FSP scheme. The other half are
invested in stocks, bonds and other securities. . . .
The nearly $100 billion in [this] half of the plan is
managed by Blackrock Financial. And, yes, shock,
Blackrock Financial is a creation of Mr. Peterson's
Blackstone Group. In fact, the FSP and Blackstone were
birthed almost as a matched set. It's tough to fail
when you form an investment management company at the
same time you can gain the contract that directs a
percentage of the Federal government payroll into your
hands.”
What “Fiscal Responsibility” Really
Means
All of this puts “fiscal responsibility” in a
different light. Rather than saving the future for
our grandchildren, as the President himself seems to
think it means, it appears to be a code word for
delivering public monies into private hands and
raising taxes on the already-squeezed middle class.
In the parlance of the International Monetary Fund (IMF),
these are called “austerity measures,” and they are
the sorts of things that people are taking to the
streets in Greece, Iceland and Latvia to protest.
Americans are not taking to the streets only because
nobody has told us that is what is being planned.
We have been deluded into thinking that “fiscal
responsibility” (read “austerity”) is something for
our benefit, something we actually need in order to
save the country from bankruptcy. In the massive
campaign to educate us to the perils of the federal
debt, we have been repeatedly warned that the debt is
disastrously large; that when foreign lenders decide
to pull the plug on it, the U.S. will have to declare
bankruptcy; and that all this is the fault of the
citizenry for borrowing and spending too much. We are
admonished to tighten our belts and save more; and
since we can’t seem to impose that discipline on
ourselves, the government will have to do it for us
with a “mandatory savings” plan. The American people,
who are already suffering massive unemployment and
cutbacks in government services, will have to
sacrifice more and pay the piper more, just as in
those debt-strapped countries forced into austerity
measures by the IMF.
Fortunately for us, however, there is a major
difference between our debt and the debts of Greece,
Latvia and Iceland. Our debt is owed in our own
currency – U.S. dollars. Our government has the
power to fix its solvency problems itself, by simply
issuing the money it needs to pay off or refinance its
debt. That time-tested solution goes back to the
colonial scrip of the American colonists and the
“Greenbacks” issued by Abraham Lincoln to avoid paying
24-36% interest rates.
Economic Fearmongering
What invariably kills any discussion of this sensible
solution is another myth long perpetrated by the
financial elite -- that allowing the government to
increase the money supply would lead to
hyperinflation. Rather than exercising its sovereign
right to create the liquidity the nation needs, the
government is told that it must borrow from
private lenders. And where does their money come
from? Ultimately from banks, which create it on their
books just as the government would have done. The
difference is that when bankers create it, it comes
with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying
to increase the money supply; and rather than
producing hyperinflation, we continue to suffer from
deflation. Frantically pushing money at the
banks has not gotten money into the real economy.
Rather than lending it to businesses and individuals,
the larger banks have been speculating with it or
buying up smaller banks, land, farms, and productive
capacity, while the credit freeze continues on Main
Street. Only the government can reverse this
vicious syndrome, by spending money directly on
projects that will create jobs, provide services, and
stimulate productivity. Increasing the money supply
is not inflationary if the money is used to increase
goods and services. Inflation results when “demand”
(money) exceeds “supply” (goods and services). When
supply and demand increase together, prices remain
stable.
The notion that the federal debt is too large to be
repaid and that we are imposing that monster burden on
our grandchildren is another red herring. The federal
debt has not been paid off since the days of Andrew
Jackson, and it does not need to be paid off. It is
just rolled over from year to year, providing the
“full faith and credit” that alone backs the money
supply of the nation. The only real danger posed by a
growing federal debt is an exponentially growing
interest burden; but so far, that danger has not
materialized either. Interest on the federal debt has
actually gone down since 2006 -- from $406
billion to $383 billion -- because interest rates have
been lowered by the Fed to very low levels.
They can’t be lowered much further, however, so the
interest burden will increase if the federal
debt continues to grow. But there is a solution to
that too. The government can just mandate that the
Federal Reserve buy the government’s debt, and
that the Fed not sell the bonds to private lenders.
The Federal Reserve states on its website that it
rebates its profits to the government after deducting
its costs, making the money nearly interest-free.
All the fear-mongering about the economy collapsing
when the Chinese and other investors stop buying our
debt is yet another red herring. The Fed can buy the
debt itself – as it has been stealthily doing. That
is actually a better alternative than selling the debt
to foreigners, since it means we really will
owe the debt only to ourselves, as Roosevelt was
assured by his advisors when he agreed to the deficit
approach in the 1930s; and this
debt-turned-into-dollars will be nearly interest-free.
Better yet would be to either nationalize or abolish
the Fed and fund the government directly with
Greenbacks as President Lincoln did. What the Fed
does the Treasury Department can do, for the cost of
administration. There would be no shareholders or
bondholders to siphon earnings, which could be
recycled into public accounts to fund national, state
and local budgets at zero or near-zero interest
rates. Eliminating debt service payments would allow
state and federal income taxes to be slashed; and the
public managers of this money, rather than hiding
behind a veil of secrecy, would be opening their books
for all to see.
A final red herring is the threatened bankruptcy of
Social Security. Social Security cannot actually go
bankrupt, because it is a pay-as-you-go system.
Today’s social security taxes pay today’s recipients;
and if necessary, the tax can be raised. As Washington
economist Dean Baker wrote when President Bush
unleashed the campaign to privatize Social Security in
2005:
“The most recent projections show that the program,
with no changes whatsoever, can pay all benefits
through the year 2042. Even after 2042, Social
Security would always be able to pay a higher benefit
(adjusted for inflation) than what current retirees
receive, although the payment would only be about 73
percent of scheduled benefits.”
Today incomes over $97,000 escape the tax,
disproportionately imposing it on lower income
brackets. Projections over the next 75 years show
that just removing that cap could eliminate the
forecasted deficit. When the Democratic presidential
candidates were debating in the fall of 2007, Barack
Obama and Joe Biden were the only candidates willing
to seriously consider this reasonable alternative.
President Obama just needs to follow through with the
solutions he espoused when campaigning.
The Mass Education Campaign We Really
Need
What is really going on behind the scenes may have
been revealed by Prof. Carroll Quigley, Bill Clinton’s
mentor at Georgetown University. An insider groomed
by the international bankers, Dr. Quigley wrote in
Tragedy and Hope in 1966:
“[T]he powers of financial capitalism had another
far-reaching aim, nothing less than to create a world
system of financial control in private hands able to
dominate the political system of each country and the
economy of the world as a whole. This system was to be
controlled in a feudalist fashion by the central banks
of the world acting in concert, by secret agreements
arrived at in frequent private meetings and
conferences.”
If that is indeed the plan, it is virtually complete.
Unless we wake up to what is going on and take action,
the “powers of financial capitalism” will have their
way. Rather than taking to the streets, we need to
take to the courts, bring voter initiatives, and wake
up our legislators to the urgent need to take the
power to create money back from the private banking
elite that has hijacked it from the American people.
And that includes waking up the President, who has
been losing sleep over the wrong threat.
Save
Add Comments To This Story