It is no great surprise that with only days to go, the congressional “super committee,” given the herculean task of carving an additional $1.2 trillion out of the federal budget, has failed to reach agreement. Why should six Republicans and six Democrats with diametrically opposed views agree in a few weeks, when Congress couldn’t shake hands on it after months of wrangling, despite the guillotine blade of a federal default hanging over their heads?
Whether the super committee reaches agreement or not, however, the deficit hawks win. If they agree, either $1.2 trillion gets cut from the budget or taxes go up by that amount; and the committee co-chair has categorically stated taxes are not going up, so that means the budget will be cut. If agreement is not reached, $1.2 trillion in cuts automatically kick in, split evenly between domestic and military spending. Either way, the economy will wind up with $1.2 trillion less in the way purchasing power. The result will be to reduce demand, kill jobs, and put more people on the streets.
For the deficit hawks, however, it all seems to be going according to plan. The super committee is characterized as an emergency measure that was rushed through to avoid an arbitrarily imposed August deadline for freezing the debt ceiling, but it has actually been in the works for years. In 2009, it was called the “Bipartisan Task Force for Responsible Fiscal Action”. That plan died when its Senate sponsors, Judd Gregg and Kent Conrad, failed to secure 60 votes for passage in the Senate. The Gregg-Conrad bill was criticized as railroading through legislation that would unconstitutionally slash domestic services without congressional debate, but its task force would actually have been LESS autocratic than the super committee, which has sweeping powers and needs only a simple majority among its 12 members to prevail.
What has been forced out of the debate is whether cutting the budget is a good idea at all. The Peter Peterson Foundation, which has been pushing “austerity” for years, has finally gotten its way. Hedge fund magnate Peter G. Peterson was Chairman of the Council on Foreign Relations until 2007 and head of the New York Federal Reserve between 2000 and 2004. He made his fortune with the controversial Blackstone Group, which he co-founded and chaired for many years. The Peter Peterson Foundation was established in 2008 with a $1 billion endowment to raise public awareness about U.S. fiscal-sustainability issues related to federal deficits, entitlement programs, and tax policies. The money was used to spearhead a massive campaign to reduce the runaway federal debt. Hysteria over the debt then prompted Tea Party newbies in Congress to hold a gun to Congress’ head by arbitrarily capping the debt.
In the campaign to educate us to the debt’s perils, we were repeatedly warned that when foreign lenders decided to pull the plug, the U.S. would have to declare bankruptcy; that we were mortgaging our grandchildren’s futures and selling them into debt-slavery; and that all this was the fault of the citizenry for borrowing and spending too much. The American people, who are already suffering massive unemployment and cutbacks in government services, would have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the IMF.
The fear-mongering, however, is a red herring. A sovereign nation can always find the money to pay debts owed in its own currency. The Federal Reserve can buy the debt itself – just as it has been doing. That alternative would effectively eliminate the problem of interest, since the Fed returns its profits to the government after deducting its costs.
Alternatively, Congress could reclaim the power to issue money from the banks and fund its budget directly. The U.S. could pay its bills using debt-free U.S. Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War. Congress could do this without changing any laws. Congress is empowered to “coin money,” and the Constitution sets no limit on the face amount of the coins. It could issue a few one-trillion dollar coins, deposit them in an account, and start writing checks.
Neither option need inflate prices. As long as the money is used to purchase goods and services, the result will simply be to increase demand, increasing production. Prices will not increase until the economy reaches full employment, and at that point any excess in the money supply can be taxed back to the government, keeping prices stable.
The key to all this is that 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. The U.S. federal debt has been carried on the books since 1835. It has NEVER been paid off during that time but just continues to grow. This has not hurt the economy, which for most of that period has been among the most vibrant in the world. The federal debt IS the money supply. All of our money except coins is created as bank debt. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.
The real problem with a growing federal debt is the interest on it, which WILL become an insurmountable burden if allowed to grow exponentially. Interest paid on the federal debt in 2010 was $414 billion, or about one-half of personal income tax receipts. That’s about as high as we dare let it go. But this problem can be eliminated either by funding the debt through the nation’s own central bank, effectively interest-free; or by the Treasury issuing the money outright, interest-free.
The burgeoning debt has been blamed on reckless government and consumer spending; but the debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers. The banking debacle of 2008 caused credit to collapse, businesses to go bankrupt, and unemployment to soar, drastically reducing the federal tax base. If anyone should be held to account, it is Wall Street; but the bankers were bailed rather than jailed, and the taxpayers got billed for the crime.
We have been deluded into thinking that “fiscal responsibility” is something for our benefit, something we actually need in order to save the country from bankruptcy. In fact, it has simply been an excuse to impose radical austerity measures on the people, measures that benefit the 1% while locking the 99% in a dungeon of debt peonage.
_____________________
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
Filed under: Ellen Brown Articles/Commentary |
WEB OF DEBT BLOG 
The deficit hawks (Peterson’s lobbying organization and sycophants) depend upon concepts which may have had some support when the US govt was using a precious metal (gold) as a standard reference; however, they seem to be unaware that this country went off that standard in 1971. Their spokesperson, President B Obama, even proclaimed that this country was running out of money (a paraphrase) – how naive can someone in a leadership role be?
I applaud your facility with words and communication of basic concepts. Great explanation.
I really don’t know how on earth they are going to cut that level of debt out, these are eye watering amounts!
Keep these messages coming. They are VITAL! We are so lied to and misled by most of the media. Almost no American understands MONEY at all! We need much more from Ellen to begin to balance the total crap churned out by the 1%.
Thank you Ellen, I understand. I am asking Obama, Crapo, Risch, and Simpson to understand.
http://treegrower.org/information_links/Mike%20Simpson/Questions.html
I sent your information from congress.org
Public money and massive forgiveness can be very effective ways to economic recovery!
Economic recovery through the Bi-partisan Super Committee charged with finding $1.2 trillion in savings over ten years or through automatic cuts kicking in by default, can have only one result: reduced availability of jobs, which will have as a consequence more bankruptcies, more foreclosures, and more people on the street. This does not need to happen in these United States! The Super Committee is caught between a rock and a hard place! That is, between making the cuts or having the cuts made for them. Either way, we the people lose.
The people’s losing really started on December 23, 1913 when Congress allowed a “fourth branch” of government to come into existence to control the contraction and expansion of the money supply that had been emphatically delegated to Congress in the 1776 Constitution. Congress was told then by Senator Nelson Aldrich of Rhode Island that making up this “fourth branch” of the government would end depressions! The private bankers/banks and legislators who established this “fourth branch” called their creation the “Federal Reserve”, a central bank for the United States.
This creature has become more powerful than its creator. Its stated goal was to be the lender of last resort and its remedy is bailouts based on the government’s ability to tax the people. The private bankers/banks and legislators have used the monetary power and influence of the Federal Reserve very well. Instead of the U.S. Treasury creating public money for the people, Congress continually borrows money from the private Federal Reserve, and instead of paying back the money it borrows, Congress services an ever-increasing debt. This over time has unjustly enriched the private banking cartel at the expense of the people, with social services having to be cut in order to service the debt.
To most of today’s working public, a decision on fiscal austerity seems like the right thing to do. In reality, the paradox of thrift comes into play when there is a weak economy. Weak economies only come about because of lack of money. In a healthy economy, people have money and spend that money on new goods and services. If people overspend, they incur debt, and end up having to service debt instead of spending their money. Likewise, the government has incurred and is having to service exorbitant debt. An overpaying of debt slows down an economy.
What can Congress do?
Congress can demand that the U.S. Treasury issue public money for the people. In this way, money is issued vs. borrowed into existence!
The Constitution gives Congress the power to coin money and regulate its value, and no limitation is put on the value of the coins it creates. The entire national debt could be extinguished with coins minted by the U.S. Mint, stamped with the appropriate face value. From my study and research, indications have it that a simple, efficient and a wide circulation of non-borrowed or public money can create a healthy, vibrant economy!
A way to relieve the people of overburdened debt is through a Jubilee, which throughout history resulted in the forgiveness of all debts in order to bring back into balance a healthy economic system. Eliminating people’s debt will free up dollars for the purchase of goods and services, which will stimulate the economy. Our current economic system has gotten out of balance through a non-transparent, unregulated mortgage fiasco.
Mortgages have been traded on Wall Street as stock, created through a securitization process of the loans of approximately 62 million homeowners in the United States. It has recently been discovered that this securitization process did not follow proper procedure, which, according to two Supreme Court decisions in Massachusetts, has clouded the original titles of the homeowners’ mortgages. This means that the current homeowners of homes may not have clear title to the home they are living in.
I say, just give the homes to them…Clear the titles and start fresh!
An effective way forward is debt forgiveness! Austerity cannot work as that will result in decreased demand in goods and services and spending will devalue the dollar even more. With the money freed up by the debt forgiveness bill H01193, everyone in Massachusetts can have a FREE home. Hey, why not?
David Snieckus
99 Crescent Street
Newton, MA 02466
617-964-2951
David Snieckus of Auburndale, a village of Newton, MA, introduced his Jubilee Act, H01193 through Representative Kay Khan on November 10, 2011 at the State House hearing by the Joint Committee on Financial Services
[…] Brown Web of Debt Share this:FacebookStumbleUponRedditPrint About Ellen BrownEllen Brown is an attorney, […]
Thank you David. I sent your ideas to my legislators http://treegrower.org/information_links/Mike%20Simpson/Questions.html
Thanks again Ellen for a clear explanation.
Since Americans are erroneously wedded to the idea that capitalism is the same as democracy, wouldn’t it be beneficial to also resurrect the Glass-Steagall Act (introduced several years ago by Cantwell/McCain)?
I think it would encourage responsible adults to return to Wall Street and once again promote progress and lawful innovation.
Would it not help to repeal the Commodity Futures Modernization Act?
http://sunlightfoundation.com/blog/2009/04/01/read-the-bill-the-commodity-futures-modernization-act/
The system is far more broken, but maybe this is all we can communicate to president and to congress. Here is what I am sending to president and congress: http://treegrower.org/information_links/Mike%20Simpson/Questions.html
It’s such a hard decision for anyone to make the amounts are staggering. I still think that getting a handle on debt has to be the priority even if that means difficult and heavy handed cut backs.
A sensible taxing system and a sensible government needs no cutbacks. We have neither. Cut backs won’t fix the problem. It will make it worse, because it means even fewer people working.
The way I see it, the committee realized that whatever it decided would likely be mooted by priority and perhaps even paradigm shifts. I’m happy it gives me a better opportunity to petition for issues of US Notes to reduce the deficit. For my first proposal, see: http://www.opednews.com/articles/The-American-Crisis–A-Co-by-Clifford-Johnson-111027-384.html and http://www.opednews.com/articles/The-American-Crisis–Defi-by-Clifford-Johnson-111108-66.html.
I’m now planning a second limited US Note issue proposal, to also snag FED misinformation, and better round out the arena of simple and “safe” issues, stretching the mind to comprehend more. I’m almost ready to table it — I’m curious if any readers can see what I see in two items.
(1) This FED FAQ turns a blind eye to rolled over Treasuries, right?
“Aren’t the Federal Reserve’s purchases of Treasury securities effectively financing a large part of the federal deficit?
No. The Treasury issues new securities to finance the federal deficit, and a range of domestic and global investors have continued to be the primary source of funding in this market. Most of the Federal Reserve’s purchases have been of “old” Treasury securities that were issued by the Treasury some time ago. Moreover, the Federal Reserve’s purchases of Treasury securities have been quite small relative to the overall buying and selling activity in the Treasury market. For example, on average, daily purchases of Treasury securities by the Federal Reserve since November 2010 have amounted to only a small fraction of the total daily trading volume in the Treasury market.”
(2) Doesn’t this GAO report on replacing all $1 bills with coins suppress the $1-per-replaced-note US-apex-issuer benefit, which utterly swamps the benefits actually reported? If so, the FED and Treasury are complicit (see letters in Appendix). The issue seems glossed over in footnote 2 on page 27. Why can’t the Treasury utilize the $1 paid to the Mint ASAP (if only to drawn down FED treasuries, which count as debt)?
Click to access d11281.pdf
I understand it’s all a numbers game — but is the Government and FED playing by the rules they made up? Or does it make up another exception whenever the rules don’t fit the private banks’ wishes?
[…] Ellen Brown Web of Debt […]