The story goes that Churchill offered a woman 5 million pounds to sleep with him. She hedged and said they would have to discuss terms. Then he offered her 5 pounds. “Sir!” she said. “What sort of woman do you think I am?” “Madam,” he replied, “We’ve already established that. Now we’re just haggling over the price.”
The same might be said of President Obama’s health care bill, which was sold out to corporate interests early on. The insurance lobby had its way with the bill; after that they were just haggling over the price. The “public option” was so watered down in congressional deal-making that it finally disappeared altogether.
Read more here –
http://www.webofdebt.com/articles/canadian_healthcare.php
Filed under: Ellen Brown Articles/Commentary |
WEB OF DEBT BLOG 
Interesting article Ellen. If healthcare reform is handled right, it will cover the millions of uninsured and it will get the stop Beltway deficit hawks from gutting social programs and raising taxes because of their fears of long-term debt. The deficit mania that the president has (foolishly) embraced is 100% due to healthcare spending.
The solution is simple, take government healthcare spending off budget, so its not counted in the federal deficit nor funded by general revenue. Medicare and Social Security were originally off budget, Social Security still is, but since a majority of Medicare spending comes out of general revenue (and not the Medicare FICA-funded trust fund), its on budget. What’s amazing is over a trillion dollars of the federal budget is healthcare spending (see p. 25 of Weiner Amendment), taking it all off budget will knock out of most of the $1.4 budget deficit right there, even when the additional trillion dollars or so of an single payer system is added.
You’re right of course thre’s no reason to raise taxes or borrow money to fund a national healthcare system, thereAs Randall Wray argued in favor of not increasing the debt limit: Once the federal debt reaches $12.1 trillion, the Treasury would be prohibited from selling any more bonds. Treasury would continue to spend by crediting bank accounts of recipients, and reserve accounts of their banks.
http://neweconomicperspectives.blogspot.com/2009/11/memo-to-congress-dont-increase.html
To keep the deficit hawks mollified, I would suggest giving the Federal Reserve a standby bank transaction tax to fund the Medicare trust whenever it (the Fed) judged that healthcare spending was creating inflationary pressure, the Fed could adjust the rate depending on economic conditions. By way of comparison, under Edgar Feige’s APT transaction tax to the Bush tax reform panel, raising $1.8 trillion in revenue would take a rate of .3% and .6% (in 2002 dollars).
Since as you pointed out, medical bills would be paid AFTER the goods and services are provided, there wouldn’t be an inflationary effect (indeed, there are likely hundreds of billions in cost savings to be wrung of the system), but if deficit hawk want a reserve parachute before they go scuba diving, then give the people what they want. :o)
I didn’t understand your second to last paragraph, but generally brilliant!
Thanks for your kind words… I knew my comment was too long, so I sort of rushed the ending (“deficits hawks” plural :o)). To unpack what I meant in the penultimate paragraph (and I apologize to your readers for my long comments)…
In your book you mentioned the “Keynesian observation that when workers and raw materials are available to increase productivity, adding money (“demand”) does not increase prices; it increases goods and services. Supply keeps up with demand, leaving prices unaffected”. So from a Keynesian perspective, direct spending on healthcare wouldn’t be inflationary (at least while the economy is running at less than full employment), especially when one factors is the $350 to $400 billlion in cost savings (per Physicians for a National Health Program) that’d result from a single payer system.
Alas, Nixon was wrong., we are not all Keynesians now. Instead of trying to persuade Congress that by exercising its power to create money, it can afford any good and services it chooses to buy, it’d be easier to say, ‘its likely direct spending on healthcare won’t be inflationary. In case we’re wrong, let’s give standby authority to the Federal Reserve to collect a bank transaction tax if Fed determines that direct spending is having an inflationary effect’. Incidentally, the courts would probably consider this a user fee and not a tax (under the San Juan Cellular test), but economically, it doesn’t really matter what’s its called. Taking a trillion plus of government spending off budget (and letting employers and employees keep the $800 billion in insurance premiums they now pay) is both deficit reduction and a de facto tax cut (like the unemployed geography teacher, I can teach it round or flat whether to keep the 2.9% in Medicare taxes or eliminate them).
Since even post-Keynesians like Warren Mosler and Randy Wray would agree that when the economy reaches full employment, the government needs to drain private savings (i.e. bank reserves) to prevent inflation, its prudent to lay out contingency plans for an efficient way for the government to tax money out of the economy. This would reassure Congress that healthcare could to fund healthcare without having to go back to Congress to vote for a tax increase. This standby authority to impose a bank transaction user fee would be analogous to Congress granting the President standby authority to unilaterally impose tariffs (such as oil import fees) on national security grounds (19 US 1862(c)).
I can’t speak for Wray, but I know Mosler prefers a federal property tax as the most efficient way to drain private savings (though the “direct tax” issue makes it constitutionally problematic). However if the plan involves giving the Fed taxing authority, it would have to rely on federal or state tax officials to assess and collect the taxes. In contrast, a bank transaction fee of the sort Professor Feige proposed would necessarily have to be collected by the Federal Reserve itself anyway. Is that any clearer or did I make it even less understandable?
I’d note two things to help win over physician support for a single-payer plan, 1. The AMA has wanted a doctor running a federal Health Department since the 1930s, since we always have an Attorney General running DOJ, a Surgeon General running HHS isn’t a bad idea; and 2. The government should assume the liability for all malpractice claims (it already does so for federal employee physicians in VA hospitals and private-sector physicians who work in non-profit Community Health Centers), it can always ban genuinely incompetent docs from Medicare reimbursement. The Republicans unsuccessfully proposed this for Medicare/public option plans in an amendment to the House healthcare bill. No more malpractice premiums would be a big selling point, especially for high-risk specialties like OB/GYNs.
Yes, very clear, thanks!
After visiting Warren Mosler’s website, Beowulf’s comments make sense.
Ugh, sorry for the typos (the dangers of multitasking)…
(4th Par.) This would reassure Congress that THE FED could fund healthcare without having to go back to Congress to vote for a tax increase.
I think there are a lot ways we could “tweak” our tax system to encourage the economy instead of impare it. For instance, taxing money itself – especially when it sits still (savings accounts, cash under matresses, …) I suspect that by itself could give the government plenty money for general government services. Which would allow them to stop the income tax, allow states to stop both income and sales taxes. And some tax reform on land – make land owners pay the full rent value of the land they own (just the land, not the improvements) as a tax. That would encourage economical use of land and those who simply got the land first would not receive an advantage over their neighbors.
Anyway, none of that deals with healthcare, except that our healthcare problem is economic in nature and it all deals with economics.
Hi, Ellen,
“However, the same result could be achieved by borrowing from the privately-owned Federal Reserve, which always rebates the interest to the government after deducting its costs. The federal debt is never paid off but is just rolled over from year to year. Interest-free loans rolled over from year to year are the equivalent of debt-free government-issued money. ”
You link this to:
http://www.publiceye.org/conspire/flaherty/Federal_Reserve.html
In his website, Dr. Flaherty defends the Federal Reserve in almost every way and challenges a lot of points that you make in Web of Debt, especially with its beginnings and intention. Also, the above statement is not in line with the solutions that you eloquently described in the later chapters.
If the federal reserve reimburses the government’s interest payments, then why does it charge interest at all? Also, are you suggesting that the Fed is not really a major part of the problem of current monetary policy? If so, then efforts to audit the Fed or End the Fed (Ron Paul) are moot?
Your clarification would be greatly appreciated.
Paul Hubbard
I had exact same thoughts when reading this:
http://www.publiceye.org/conspire/flaherty/Federal_Reserve.html
The “Web Of Debt” book seemed to capitalize a lot on those “Myths”. If the articles on publiceye.org are correct – then the U.S. debt SHOULD be held by the Fed – for the interest is reimbursed to the Treasury. Then the problem is U.S. debt that is held by somebody else than the Fed (the Chinese, Japanese, Mutual funds, Pension funds and so on).
I would also appreciate the clarification.
Thank you
Hi, when the Fed was set up, it collected interest on the debt; that was the intent, to issue the national money supply, lend it to the government, and charge interest on the loan. But in the 1960s, Wright Patman as head of the House Banking and Currency Committee peered closely and saw what they were up to. He said this was fraudulent and tried to get the Fed nationalized. The Fed then agreed, quietly, to rebate its profits after deducting its costs, in return for maintaining its independent status. The catch is that the Fed rarely buys long-term government bonds. Rather, they are normally put up at auction, and many of them wind up with the banks, which DO collect interest on them. I wrote an earlier article explaining all that in detail, with citations. What the government should do is to walk over to the Fed and MAKE it turn the government’s long-term securities into cash. The loans would then be rolled over indefinitely, as all government debt is, and the interest would be returned to the government — the same net effect as Lincoln’s Greenbacks.
Ellen,
As Randall Wray mentioned this morning (replying to a comment I made referencing your article), Uncle Sam doesn’t have to issue bonds anymore, the Fed can now more easily control interest rates by paying interest on excess reserves, it was authorized to do so by the TARP bill.
1. No the Fed had not previously paid interest; in fact many within the Fed had long wanted to do this. Their reason was to reduce the “tax” on banks. They probably did not understand the advantage with regard to interest rate setting. Canada moved to this system a decade ago.
2. Once you have done this, there is no reason to issue Treasuries. That is why I wrote the piece arguing that we should not raise the debt limit. Just pay interest on reserves, instead. Operationally that is the same thing.
3. If Treasury pays interest to Fed [for an overdraft of its Fed account, a Fed to Trsy loan in other words. B], it adds to Fed profits; and Fed turns over all profits above 6% return to the Treasury. So effectively the treasury pays the interest to itself.
http://neweconomicperspectives.blogspot.com/2010/01/will-bernanke-be-reappointed-does-it.html#comments
Which article was that, Ellen?
Paul, “the article” is the “Canadian Healthcare” piece linked at the top of the page.
No, she said:
“I wrote an ‘earlier’ article explaining all that in detail, with citations.”
She is referring to long-term government bonds being generally put up at public auctions.
Oh sorry, I didn’t see that comment of hers.
I don’t know what article she means either.
Thank you for the reply.
So, in theory – whoever owns the U.S. debt and then collects the interest – are the ones most inclined to keep the status quo (taxing the public to get the interest) at least for the U.S. situation.
If this is correct:
http://en.wikipedia.org/wiki/United_States_public_debt
then half of the debt is owned by the Fed, then the majority of the rest is owned by China, Japan, UK, Mutual Funds and the States.
So – if the Fed rebates the interest to government then the half owned by the Fed is not an issue at the moment then (?). The problem then – is the other half and the fact that Fed can sell its half to the other private holders (which will then get the interest)?
Thank you again
As Treasuries expire over time, the public debt will decrease and bank reserves will increase. If the Fed unloaded the Treasuries it holds, Uncle Sam could simply buy up the debt up itself. It wouldn’t cost anything since it essentially paying overdraft interest to itself.
under current system – if government would buy up its own debt – there would be a deflation, if I understand the system correctly. Only Fed can buy the debt with newly issued money.
Debt is also not a problem – IF it is rolled back form year to year – and IF the interest is rebated. So it seems to be rebated by the Fed. But of course NOT rebated by Chinese, Japanese, and all sort of financial funds or wealthy individuals.
So it seems that Fed should not care either way about how much debt it holds – it does not get much from it – on the other hand those others do get something from it – the interest. So it seems that they would care the most about keeping U.S. debt. Am I missing something?
So Fed (which of course is controlled by wealthy individuals) can easily buy more influence by selling U.S. debt to some other entities. The difference for taxpayers – is that in that case the interest is not rebated.
Again – I am not sure if I understand this correctly.
If Treasury overdrafted its Fed account, the Fed
would be creating money and crediting Trsy.
Its with that new money that Trsy could buy old debt.
I’d recommend checking out Warren Mosler’s site,
he’s an very sharp economist and a nice
guy. Worth reading some of his works.
http://moslereconomics.com/mandatory-readings/
Gary, Nice observations. But the Fed profit handsomely off the bonds they buy from the government before rebating the interest to the gov’t, in subtle ways few people can even begin to understand.
First, they get to use the interest money before rebates are paid. Free use of money makes more money without even trying, and believe me, they try.
Second, the first use of new money returns a built-in profit to the first-user called “seniorage”. Once that new money filters down though the banking system under our current privately created money-monster, it has a an inflationary effect. That makes the money worth less as it changes hands, and multiplies throughout the banking system.
The US taxpayer is paying private banking interests this “seniorage” (inflationary) profit, even if the banks later rebate interest to the gov’t.
Third, the Fed deducts “operating costs” and expenses before their so-called rebate to the Gov’t. These “costs” include handsome, even lavish salaries and bonuses to Fed officials, for starters. And there are many more ways that are to complex to go into here that the FRS (an association of private domestic and foreign central bankers) makes money off this parasitic system.
I think you personally may understand all this, but my comments are for the benefit of those who don’t see how private bankers are gaming the system, and draining the lifeblood out of our nation.
Thanks for your comments.
Sorry to post here, but the link to the latest two radio shows is broken…
Ellen – noticed a local MN governor candidate had an interesting central issue to his campaign….are you familiar with this/this guy?
http://www.lesliedavis.org/
I’m still confused on the non-inflationary part…it seems to me govt spending would increase the amount of dollars cahsing goods and services…not necessarily a bad thing in terms of velocity of money and social mood…but still more money chasing steady state amount of labor, goods, commodiites would equal price increases.
And what of the chart in this link below showing CPI in US tracking govt spending?
http://www.hussmanfunds.com/wmc/wmc100119.htm
I do agree places seem to have done their own currency without inflation, so there is expirmental evidence, but I’d like to know and understand the mechanics…and how do you manage govt spending to avoid pitfalls? Do you decide to build 5000 roads and bridges or just two.
Also is there a scale issue?
Like say if Guernsey is govt is buying lots of commodities via importation, than the price of those commodities are not going to climb as they are huge amount on world market compared to Guernsey ability to spend, but say the US govt did bought a bunch of minerals needed to make efficient batteries with our currency, wouldn’t that. along with other spending cause general inflation?
As long as the quantity of goods and services keeps pace with the increase in the money supply, inflation will not occur. This requires that additional money be used to produce those additional goods and services.
Here’s the key point, our economy has idle capacity. We have empty home (foreclosures) and homeless people along with many who’d like a home but are doubling up to save money. We also have idled or even closed down factories, yet plenty of unemployed workers. The only thing keeping the homeless from buying or renting a home is a lack of money. What prevents factories from operating is a lack of money to hire the workers. This was the situation in the 1930’s and it’s the same situation today. More money, put in the right places, will get those workers hired, those factories operating, those homes filled and the homeless off the streets (or out of their parents/friends homes).
—-
Managing the choices between 5000 roads or just 2 is no different under any system of finance. What can you afford? If you have the money for 2 roads, you build two. If you have a good economic system, that money will also help the road workers buy food, clothing, transportation, and maintain a home. The money will let those businesses hire more workers, expand and provide everyone with additional goods and services. Eventually, it will return to the government in taxes and can be spent on more roads.
Thanks for your reply….its got me thinking…I have thought previousl the problem you mentioned, idle capacity I have thought about in terms of deflation that has been properly allow to happed, or price reductions that follow along with reductions in wages.
The idle capacity thing seems to me a overpricing of some assets. We probaly have an oversupply of houses because they built more than is needed from a cultural, energy perspective (that is we really don’t need or want to spread out any more) but putting that aside, the housing is too expensive compared to wages, If house prices came way done to historical values compared to wages (and since wages are way down, the prices would have to way way down) then the housing units would fill with people at low rents. However, since housing is backing our entire banking system, proper price discovery seems unlikely.
On labor, I don’t know if same cycle, pricing issues…like my employer, if they pay us half of what they do, I still don’t think they would hire more people, as they simply hire what they need to make and sell what people are currently demanding which is not much. Maybe they would hire more sales people and as the incremental increase in sales due to them would have to be less to justify their hiring.
Anyway, the idle capacity does always seem an unecessary distortion. I can see societies can go through some general good times and bad times (like during droughts, wars, technological innovations etc..) but it seems idle capacity of labor and capital other than during times of transition (people’s training is in something no longer needed, machines out dated) should be avoidvble with proper monetary policy.
If the price of all goods and services decreased at the same pace as the money supply shrinks, I doubt we’d ever suffer from economic depressions. If our world had no debt, it might even be possible for the prices to decline.
However, our economic system has made it impossible for most people to purchase a home or car without going into debt. If the money suppy shrinks, workers must still receive the same wage or lose the ability to pay their debts. Instead of causing all their workers to go homeless, most businesses lay off a portion of the workforce and retain the rest at their previous wages. The business can cut their expenses (and pay their own debts longer) but the laid off workers are forced into forclosure.
Perhaps if our monetary system created money without first putting someone into debt we’d have enough money that everyone could pay off their debts and keep the economy going…
“This requires that additional money be used to produce those additional goods and services.”
“Here’s the key point, our economy has idle capacity.”
Your theory about inflation and idle capacity is wrong, but let’s assume for a moment that it is correct.
What happends after you put all your idle capacity to work with your new money? Will you then start to experience inflation for every new dollar created, or not?
Possibly. If the quantity of goods and services available to satisfy the demand remains constant while the demand from more money goes up – I would expect price inflation. But technological progress and a growing population both increase the amount of goods and services that can be produced. The money supply has to keep up with that growth.
So your “key point” doesn’t seem like a satisfactory answer to as why there won’t be price inflation since any idle capacity is a temporary phenomena, I believe by your own account.
So you are left only with this:
“As long as the quantity of goods and services keeps pace with the increase in the money supply…”
The statement is in a way an acknowledgement that an increase in money is to keep up with an increase in goods, and not the other way around. Did I interpret that correct? So an increase in money cannot possibly cause an increase in goods unless you are going to claim that paper bills do the actual labor. Again, I believe that this truth can be inferred from your own statement above.
So what causes goods to increase?
Here are your suggestions:
1. “But technological progress”
Technology alone can’t explain it. China and former Soviet Russia never lacked any technological knowledge, not did they lack any scientists, engineers, and even academic teachers and professors. We know today that growth in the former Soviet block was nothing but a sham and China today is still about 10 times poorer then the US.
2. “a growing population”
That can’t be it either. A growing population is also more people to feed. There is nothing to guarantee that their added productivity will out pace their need to be fed. Look at India.
Technological progress that increases the amount of goods or services produced for the same labor input will certainly add to our economy.
Technological progress that provides additional goods and services for people to consume may add to the economy – if there are excess goods or services it replaces.
A growing population not only creates more mouths to feed, bodies to cloth and so on — it also produces more workers to produce the goods and services that increased population needs.
Technological progress doesn’t happen all by itself. Progress already means that there was investment of previous available resources that were put to use in order to achieve this progress.
But where do these resources come from? Creating money isn’t going to magically create them and you’ve already used up your temporary idle resources you mentioned in the beginning.
Good point. Society as a whole has to decide how much economic output should be diverted to technological progress. Money just lubricates the economy to employ unused resources so there can be more investment into technology.
If the economy is at full employment, then yes any additional money creation would be inflationary. The government should then cut its own spending and/or raise taxes. To use the most extreme example, during WWII, Uncle Sam kept inflation under control despite zero unemployment and a booming economy (it doubled in 4 years) by raised tax rates dramatically (introduced tax withholding, top marginal rate, over 90%) plus imposing wage and price controls that aren’t imaginable today.
Let’s see, food and gasoline were rationed, millions of men drafted into the military at below-market wages and the national speed limit was set at 35 mph. To suddenly zoom on topic, this was the era that health insurance became an employer-provided benefit because it was exempt from taxes, and more to the point, the wartime wage controls.
“If the economy is at full employment, then yes any additional money creation would be inflationary”
That has been the traditional or orthodox economic wisdom, but it is a key element that most money reformers disagree on. I think I can speak for what Ellen has written, and with which I fully agree, when I counter that under a publicly created money system there would be no inflation from additional money IF the total supply of money is kept on par with the total amount of production and commerce in the system.
Most current thinking on the causes of inflation obscure the role of the private bankers sucking the compound interest of debt-money out of the system… or at least most of it. Much of it goes into foreign bankers vaults, including the stockholders of the BIS, WB, and IMF. Foreign bankers own much of the stock in the privately held Federal Reserve banking system, and there are dno rules to keep that money they earned in our own economy… and they don’t.
The Federal Reserve System’s entire purpose was and still is to take down the US economy. American democracy was and is the biggest opposition to global economic control by the central bankers, and our economy must be ruined before the bankers believe they can establish their world order.
So far, they are doing far better than any foreign army could ever do. The purpose of money reform is to stop this planned economic ruin. Continuing the status quo, or adopting alternative systems that will take us back 4 or 5 decades is just a part of the planned deception.
It almost sounds too good to be true. Seriously though, if the Canadians can figure this out…
Now it sounds like the America people are happy with health care in the US. Everyone is worried about the economy.
http://jraymondcpa.com/irs-problemshome.php