.

For the times they are a-changin’

Timothy Wilken, MD

I began college in September of 1963. We were four years into the Viet Nam War, which would last another 12 years. The country was rapidly becoming divided by the diverging world views of the young and the old.

A young 22 year old  named Bob Dylan would establish his musical career by describing this rift in the American mind in song.

Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’.
For the loser now
Will be later to win
For the times they are a-changin’.

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’.
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’.
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’.
And the first one now
Will later be last
For the times they are a-changin’.

Leap forward 48 years to 2011, and again we are seeing a major divergence in American culture. In 1963, the division was between the young championing morality and the old standing by nationalism.

In 2011, the division is between synergists championing co-Operation and the neutralists standing by market.

Wise woman Ellen Brown schools us today in the roles that stimulus can play in our economic fortunes, and why WAR is possibly the worst way to stimulate an economy. Reposted from truthout.

WAR: The Fiscal Stimulus of Last Resort

Ellen Brown

Terry Wilken, editor of the RWWNL, forwards this amazing essay which was first posted in 1985. The essay has been updated and reposted in many places since then, but even the original version written 26 years ago contains an important truth that is quite relevant to understanding our current political-economic crisis.

The 545 People
Responsible for all
of America’s Woes?

Charley Reese (1985)

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits? Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes?

You and I don’t propose a federal budget. The president does. You and I don’t have the Constitutional authority to vote on appropriations. The House of Representatives does. You and I don’t write the tax code. Congress does. You and I don’t set fiscal policy. Congress does. You and I don’t control monetary policy. The Federal Reserve Bank does.

One hundred senators, 435 congressmen, one president and nine Supreme Court justices – 545 human beings out of the 235 million – are directly, legally, morally and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered but private central bank.

I excluded all but the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it.

No matter what the lobbyist promises, it is the legislation’s responsibility to determine how he votes.

A Confidence Conspiracy

Don’t you see how the con game that is played on the people by the politicians? Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of Tip O’Neill, who stood up and criticized Ronald Reagan for creating deficits.

The president can only propose a budget. He cannot force the Congress to accept it. The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating appropriations and taxes.

O’neill is the speaker of the House. He is the leader of the majority party. He and his fellow Democrats, not the president, can approve any budget they want. If the president vetos it, they can pass it over his veto.

Replace Scoundrels

It seems inconceivable to me that a nation of 235 million cannot replace 545 people who stand convicted — by present facts – of incompetence and irresponsibility.

I can’t think of a single domestic problem, from an unfair tax code to defense overruns, that is not traceable directly to those 545 people.

When you fully grasp the plain truth that 545 people exercise power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it’s because they want it unfair. If the budget is in the red, it’s because they want it in the red. If the Marines are in Lebanon, it’s because they want them in Lebanon.

There are no insoluble government problems. Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take it.

Above all, do not let them con you into the belief that there exist disembodied mystical forces like “the economy,” “inflation” or “politics” that prevent them from doing what they take an oath to do.

Those 545 people and they alone are responsible. They and they alone have the power. They and they alone should be held accountable by (we) the people who are their bosses – provided we have the gumption to manage our own employees.

Today’s author is a well known financial analyst and Gold expert from South Africa. When he last wrote at this website,  it was 2002 and gold was selling for less than $400 an ounce. … Obviously things have changed.

Today’s essay, just written in August of this year, comes to us from the Le Metropole Cafe, Inc.

The 2011 State of the US Economy

Daan Joubert

It is no longer news that the US economy is in trouble. This essay reviews certain key features of the US economy and how these might influence the outlook for the US over the near to medium term. The conclusions, unfortunately, are gloomy.

The theme for the analysis is set by a quotation from the book, “This time is different: Eight centuries of Financial Folly”, by Ken Rogoff and Carmen Reinhart. Near the end of the book, the following appears:

“The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits. Just as an individual can go bankrupt no matter how rich she starts out, a financial system can collapse under the pressure of greed, politics, and profits no matter how well regulated it seems to be. [Much has changed . . .]

‘Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained constant. No careful reader of Friedman and Schwartz will be surprised by this lesson about the ability of governments to mismanage financial markets, a key theme of their analysis.

‘As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubble and last for a surprisingly long time. But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

‘This time may seem different, but all too often a deeper look shows it is not. Encouragingly, history does point to warning signs that policy makers can look at to assess risk—if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, “This time is different.”

One can argue long and hard about the causes of the ongoing financial crisis of the past 3-4 years, but it will be generally admitted a few factors played a key role in fomenting the crisis. Underlying it all is a change in social climate that took root in the US after WWII and subsequently found fertile soil in many other places, predominantly in the western world. There was a change from the old standard where society was rated more important than the individual; it would seem that with the increased rights of the individual came a “me first” attitude that meant one was entitled to break society’s rules and even laws when in pursuit of personal benefit.

Leaving this more philosophical factor aside, it is self evident that reduced or even lack of oversight in financial markets, a too free and easy monetary policy, new and free-flowing sources of credit, a free-spending Federal government, manipulation of official statistics and the free trade climate have all at various times and to different degrees contributed to the complex mess that erupted in 2007 when Bear Stearns announced that their mortgage funds were in deep trouble. Of course, it took the Lehman collapse to bring home the magnitude of the developing crisis.

Despite initial assurances that ‘the mortgage problem is contained’ and later that the ‘green shoots are sprouting all over’, then that ‘economic growth is slow but steady and the end is in sight’, it should be evident that the American economy is not well. The real question now is not so much whether we will see a double dip, but whether the ongoing recession will drag on until the economy can show new growth or if it will deepen into a more severe recession, even depression. If the latter, which is the anticipated future here, the question of how long and how deep becomes relevant.

Background

The licentious way the mortgage market was exploited by the US financial system was the eventual trigger for the financial crisis of the past 3 years. It has left much debris in its wake, but is no longer a direct factor in the further development of the US economy. Key factors expected to play a significant role for the near to medium term (next 1-3 years) are:

The Federal budget deficits
The impoverishment of America
Changes in government policy
The actions of other countries, notably Asian and European countries

These are not the only factors to play a role. However, it will be shown that these four factors, together with their anticipated effects, will dominate the US future.

Federal Budget Deficit

On August 2nd president Obama signed a new Federal debt limit into law. The new limit is $16,7 trillion – an increase of $2,4 trillion over the previous limit and designed to avoid a fresh debate on a new limit prior to the 2012 presidential election. The $2,4 trillion increase is $500 billion greater than the previous record, which, as chance would have it, was also signed by president Obama, i.e. within the past 3 years.

The increase in the ceiling is about $8000 per man, woman and child, bringing the total Federal debt, once fully committed, to $55 000 per individual American. That is about $220 000 for every family of four and the top people in the US are confident that it can be repaid in full once growth kicks in again, or so they say. The question whether the US economy can resume the kind of growth needed to repay the debt within a reasonable time frame and without undue loss of value to the lenders is discussed in the next section. The answer is ‘No’.

The only way the US can get rid of its national debt is by default – in itself fraud if by intent – or to massively debase the dollar through inflation and repay the debt with near worthless dollars.

Either flagrant debasement of the currency – which many commentators seem to think is already happening – or default, will effectively mean the end of the US dollar as the reserve currency and trigger extreme loss of value when large holders of US debt are compelled to sell the US currency at any price. That would leave the US as a country with whatever manufacturing industry it still has and with reduced ability to pay for imports manufactured elsewhere – not a pleasant prospect at all.

The effect of these events on the US economy and on the standard of living of most Americans is well beyond recent experience and not easy to imagine.

After reading the next section, the reader may want to ponder the ability of the US economy to grow to at such a rate the US is able to avoid default on its obligations.

The Impoverishment of America

America may well be on its way to living standards associated with the developing countries or perhaps even the third world

Chart 1. Sources:

Wage and salary disbursements: Bureau of Labor Statistics:A576RC1

Disposable Personal Income: DSPI: U.S. Department of Commerce

Federal Reserve – St. Louis (FRED): US CPI, cumulative – (CPI-U): CPIAUCSL

Shadow Government Statistics (SGS) – alternative CPI derived from CPI chart

The above chart (from “The Coming Great US Depression” – d joubert 2011: 4 parts, available on request) shows real total employee disbursements and total disposable income discounted by the official US CPI and the traditional CPI as calculated by www.shadowstatistics.com. The chart is normalized in January, 1964.

In effect, the chart shows the ability of American households to maintain a standard of living, as measured by the real purchasing power of their income, relative to what they enjoyed in 1964. From 1964 to the early 1990s households enjoyed an improving standard of living according to both measures of the CPI – it was really only then that the Clinton administration began with hedonic and other adjustments to how the CPI is calculated to show lower increases in the consumer price index. Doing so brought all manner of benefits to the Clinton administration and it is no wonder that the hedonic CPI was subsequently maintained by Bush and Obama.

Disposable income, including total employee disbursements, continued to outpace the official CPI after 1990, as a combination of wage increases and a greater number of participants in the economy increased total income. On the face of it, working and earning Americans were doing well and the boom period in the economy, from 1990 to the beginning of the financial crisis, seem justified.

The situation changes drastically when viewed in terms of changes in the true cost of living. In terms of the real purchasing power of earned income, the US as a whole is now back where it was in 1964.

The decline in real purchasing power of domestic America means that as time passes, a greater fraction of income has to be spent on the essentials of living. For America as a whole this has already happened; for individual households the situation is much worse, with real purchasing power substantially below what it used to be in 1964.

Initially during such a trend of declining purchasing power, there is a cushion that enables households to reduce discretionary spending in order to afford the food and energy and transport needed to survive in reasonable comfort. As the situation gets worse, less funds are available for discretionary spending. Finally, households have to decide which of their normal expenses they can leave out of the budget in order to be able to pay for the essentials of living.

Of the typical fixed expenses – bank loans, credit cards and mortgages – the latter is the one that, if not paid, gives the longest breathing space before penalty action gets taken against the household. No wonder then that, according to DSnews.com at latest count more than 8% of all US mortgages not in foreclosure are in arrears by at least 30 days. That is about one in twelve houses not already in foreclosure being on their way to that same status and bodes ill for the US housing market.

Finally, when things continue to deteriorate, households need assistance in order to eat and they have to apply for and rely on food stamps to survive.

According to nationalpriorities.org, in 2007 52 million people were eligible for food stamp assistance, but only about half were actually receiving it. Even if that fraction has improved substantially since then, it implies that the number of Americans that are in need of some kind of assistance substantially exceed the more than 45 million Americans that were on food stamps at the end of May – 14%+ of the population or more than one in seven of all Americans.

The number of households receiving food assistance were 21,5 million, which makes it almost 20% of all US households. The actual number of people and households that are currently eligible for food aid is not known to the author.

Fig 1. Food stamp participation.

As the chart shows, the rate of increase is steep, having increased from about 26 million to about 45 million since January 2007 – 20 million more people who do not make a significant contribution to the economy, but are a drain on resources.

The reason for this sustained, steep increase in the need for food assistance is clear when the change in the real purchasing power of average individual incomes is displayed. The essay, “The coming great US Depression – daan joubert” examined the average income of different sectors of the US economy in terms of the official CPI as well as the SGS CPI, calculated by Shadow Government Statistics using the original method for calculating the CPI when it still reflected a constant standard of living

Employers for obvious reasons linked wage and salary increases to the lower official CPI. As time passed, the incomes of working America increasing lagged behind the more steeply rising cost of living as reported by the SGS CPI. Their reduced real purchasing power of US working households have now reached crisis levels.

The four demographic sectors whose average income was used are: hourly paid workers, weekly paid workers, disbursements to employees and disposable income. The first three sectors including different groupings of employees, while disposable income included all Americans who earn an income.

The sources of the data are:

Disposable income per capita: Bureau of Labor Statistics: A229RC0

Average hourly earnings of production workers: data.bls.gov: CES0500000008

Average weekly earnings, production workers: data.bls.gov: CES0500000030

Total non-farm employment: Bureau of Labor Statistics: PAYEMS

Wage and salary disbursements: Bureau of Labor Statistics: A576RC1

CPI data used are as for the previous chart.

Chart 2: Real earnings for groups of Americans as per the SGS traditional CPI

This chart essentially is a demographic breakdown of Chart 1. Working America, employees on wages and salaries, just about managed to sustain their standard of living from 1964 to 1990, while all Americans – i.e. including the elite who earned their incomes other than from wages or salaries – could enjoy a much better standard of living than they enjoyed in 1964 until the early 90’s. The real purchasing power of all Americans then also started to decline and by 2006 the average American too was worse of than almost 40 years earlier.

The degree to which working Americans have lost real purchasing power is more than disturbing. One can imagine after 1990 most households with a single bread winner found it difficult to survive. Households with two people earning an income were better off, but even these households are likely to have made extensive use of the easy credit available until quite recently to manage their budget.

Now that credit has become tight, it is no wonder that mortgage default is becoming more endemic and that the number of people on food stamps are rising steeply.

Over the past few decades, America has become impoverished; as a country, but, worst of all, for the disaster that official policy casts onto individual households. The fact that this is likely also to have happened in other countries where hedonic CPI’s are calculated, is poor consolation.

Should this trend of decreasing purchasing power – the result of wage and salary increases linked to the official CPI – continue, as is anticipated, then the probability that the US can enter into a new intrinsic growth period is negligible or even nil. If there is no natural growth, the US is unable to begin to repay its debt; instead, it will have to run continuing deficits to fund the entitlements. The deficits are here to stay, irrespective of any plans to cut Federal expenses by piddling amounts over however many years. Someone has to pay to keep the wheels rolling; households can’t do it.

Changes in government policy

All indications are that one should not hold one’s breath while waiting for a change in government policies. The CPI will still be calculated using hedonic adjustments – which means wages and salary increases will remain too low to sustain the current standard of living, let alone enable households to improve their living conditions.

Consumer spending is increasingly being limited to essentials for survival. Increases in consumer spending are reported as good news, while at least part of the increase often is the effect of rising prices for food, energy and transport – which reduces the money available to spend on other things. This is not positive for growth.

The government will keep on trying to use stimulus to create jobs and get consumers back to the checkout tills, probably using credit cards since they do not have excess funds to spend. It will not have much success under the conditions as described here. Employers will not hire until the economy picks up, which it is not expected to do.

There is bound to be an overt or covert QE3 to enable the government to continue to spend deficit dollars. This will not be enough to support the GDP in the absence of sustained consumer spending and the economy will sink into recession, or worse.

Deficit reduction is a joke. Hoping to cut umpteen trillions of dollars from the budget over a period of ten years is a farce. If the US continues to run a deficit of more than $1 trillion over the next two years, given the deteriorating trend in 70% of the US economy represented by consumer spending, US dollars will be worthless. Fitch and Moody’s will be compelled to desert their loyalist stance and also down-rate US debt – and not only down to AA+, but much lower.

Given the worsening situation and ruling trends, current policies are untenable over even just the medium term. Unfortunately, choices are limited and the alternatives are politically impossible to contemplate. Unfortunately, the opening quote from Rogoff and Reinhart applies and history will have to run its course, in a spiral of ever worse conditions.

The actions of other countries, notably Asian and European countries

The way that US households are being impoverished and with little chance that the trend will be reversed soon, the odds that enough economic growth can be realized to repay the mounting Federal debt within a reasonable time frame, if at all, are very small to negligible. In due course, all foreign holders of US debt will be compelled by the reality of the situation to act on this knowledge.

While an official CPI that since 1998 ranges around 7% below the true increase in the cost of living has managed to present a not too pessimistic view of the US economy, this painting over of cracks in the economic foundation of the US cannot continue indefinitely. Sooner or later the catastrophe wrought by the artificially low CPI on US households, combined with the effects of other unproductive government policies and sustained deficits, will trumpet how worthless US Federal debt has become.

That could be the trigger for foreign countries to end their support for the US dollar and their hopes that the US could haul a rabbit out of the economic hat. At that time it will be too late to consider change, as the US will find itself deserted by countries keen to isolate themselves from the US fall out.

Europe has troubles of its own, some say even worse than the US. It would not surprise if Europe begin to distance itself even earlier from the mess developing in the US and try their best to find a workable solution for their own troubles along the austerity path they have adopted.

While Asia may pay occasional lip service to their loyalty to the US and the dollar, it would be most surprising if they are not even now doing all they can to isolate them and their wealth from the consequences of what is happening in the US.

There is little doubt that while other countries will be affected by what happens in the US, America will largely suffer the most and alone.

Copyright (c) 1999 – 2011 Le Metropole Cafe, Inc.

Well this is certainly a fine kettle of fish, we have gotten ourselves into! … The Market has spoken!

Austerity Is Bad for Business

Ellen Brown

On Thursday, August 4, the Dow Jones Industrial Average fell 512 points, the biggest stock market drop since the collapse of September 2008.

Why?  Weren’t the markets supposed to rebound after the debt ceiling agreement was reached on Monday, avoiding U.S. default and a downgrade of U.S. debt?

So we were told, but the market apparently understands what politicians don’t: the debt deal is a death deal for the economy.

Reducing government spending by $2.2 trillion over a decade, as Congress just agreed to do, will kill any hopes of economic recovery.  We’re looking at a double-dip recession.

The figure is actually more than $2.2 trillion.  As Jack Rasmus pointed out on Truthout on August 4^th:

Economists estimate the “multiplier” from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375 billion to $400 billion in terms of their economic effect. Ironically, that’s about equal to the spending increase from Obama’s 2009 initial stimulus package. In other words, we are about to extract from the economy – now showing multiple signs of weakening badly – the original spending stimulus of 2009!

As others have pointed out, that magnitude of spending contraction will result in 1.5 million to 2 million more jobs lost. That’s also about all the jobs created since the trough of the recession in June 2009. In other words, the job market will be thrown back two years as well.

We’re not moving forward.  We’re moving backward.   The hand-wringing is all about the “debt crisis,” but the national debt is not what has stalled the economy, and the crisis was not created by Social Security or Medicare, which are being set up to take the fall.  It was created by Wall Street, which has squeezed trillions in bailout money from the government and the taxpayers; and by the military, which has squeezed trillions more for an amorphous and unending “War on Terror.”  But the hits are slated to fall on the so-called “entitlements” – a social safety net that we the people are actually entitled to, because we paid for them with taxes.

The Problem Is Not Debt But a Shrinking Money Supply

The markets are not reacting to a “debt crisis.”  They do not look at charts ten years out.  They look at present indicators of jobs and sales, which have turned persistently negative.  Jobs and sales are both dependent on “demand,” which means getting money into the pockets of consumers; and the money supply today has shrunk.

We don’t see this shrinkage because it is primarily in the “shadow banking system,” the thing that collapsed in 2008.   The shadow banking system used to be reflected in M3, but the Fed no longer reports it.  In July 2010, however, the  New York Fed posted on its website a staff report titled “Shadow Banking.”  It said that the shadow banking system had shrunk by $5 trillion since its peak in March 2008, when it was valued at about $20 trillion – actually larger than the traditional banking system.  In July 2010, the shadow system was down to about $15 trillion, compared to $13 trillion for the traditional banking system.

Only about $2 trillion of this shrinkage has been replaced with the Fed’s quantitative easing programs, leaving a $3 trillion hole to be filled; and only the government is in a position to fill it.  We have been sold the idea that there is a “debt crisis” when there is really a liquidity crisis.  Paying down the federal debt when money is already scarce just makes matters worse.  Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.

Most of our money now comes into the world as debt, which is created on the books of banks and lent into the economy. If there were no debt, there would be no money to run the economy; and today, private debt has collapsed.  Encouraged by Fed policy, banks have tightened up lending and are sitting on their money, shrinking the circulating money supply and the economy.

Creative Ways to Balance the Budget

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. The only real danger posed by a growing federal debt is the interest burden, but that has not been a problem yet.  The Congressional Budget Office reported in December 2010:

[A] sharp drop in interest rates has held down the amount of interest that the government pays on [the national] debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP–a smaller share of GDP than they accounted for during most of the past decade.

The interest burden will increase if the federal debt continues to grow, but that problem can be solved by mandating the Federal Reserve to buy the government’s debt.  The Fed rebates its profits to the government after deducting its costs, making the money nearly interest-free.  The Fed is already doing this with its quantitative easing programs and now holds nearly $1.7 trillion in federal securities.

If Congress must maintain its debt ceiling, there are other ways to balance the budget and avoid a growing debt.  Ron Paul has brought a creative bill that would eliminate the $1.7 trillion deficit simply by having the Fed tear up its federal securities.  No creditors would be harmed, since the money was generated with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.

The Trillion Dollar Coin Alternative

The most direct solution to the debt problem is for the government to fund its budget with government-issued money.  One alternative would be for the Treasury to issue U.S. Notes, as  was done in the Civil War by President Lincoln.

Another alternative was suggested in my book Web of Debt in 2007: the government could simply mint some trillion dollar coins.  Congress has the Constitutional power to “coin money,”  and no limit is put on the value of the coins it creates, as was pointed out by a chairman of the House Coinage Subcommittee in the 1980s.

This idea is now getting some attention from economists.  According to a July 29^th article in the Johnsville News titled “Coin Trick: The Trillion Dollar Coin”:

The idea just started to get serious traction the last few days as the debt stalemate has grown more intense and partisan. Yale constitutional law professor Jack Balkin floated it as an option in a CNN op-ed yesterday (July 28th).

Today the idea has gone mainstream. It is covered by NY Magazine, CNBC, and The Economist. Even Nobel economist Paul Krugman of the NY Times has weighed in. Annie Lowrey of Slate discusses it as one of several gimmicks the government could use to resolve the debt-ceiling debacle. Krugman added:

These things [like coin seigniorage] sound ridiculous — but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?

The debt ceiling itself was a legal trick, a form of extortion based on a century-old statute that conflicts with the Constitution.  However, said the Johnsville News article, “coin seigniorage is not a scam. It is legal . . . . This plan looks like it might be Obama’s ace in the hole . . . .”

The article cites Warren Mosler, founder of MMT (Modern Monetary Theory), who reviewed the ideain a January 20^th blog post and concluded it would work operationally.

Scott Fullwiler, associate professor of economics at Wartburg College, also did a comprehensive analysis and concluded that the trillion dollar coin alternative was unlikely to result in inflation.  Comparing it to Ron Paul’s plan, he wrote:

This option is much like Ron Paul’s proposal—actually identical in terms of the effect on the debt ceiling and the Treasury—except that his proposal would destroy all of the Fed’s capital (and then some), which is a potential problem politically . . . though not operationally, and which the Fed is therefore very unlikely to agree to.

On the inflation question, just because the Treasury has money in its account doesn’t mean it can spend the funds.  It needs the usual Congressional approval.  To keep a lid on spending, Congress just needs to be instructed in basic economics.  They can spend on goods and services up to full employment without creating price inflation (since supply and demand will rise together).  After that, they need to tax — not to fund the budget, but to pull excess money back in and avoid driving up prices.

Spending More While Borrowing Less

In an economic downturn, the government needs to spend more, not less, as history shows.  This can be done while still balancing the budget, simply by taking back the government’s Constitutional power to issue money.

The budget crisis is an artificial one, and the current “solution” will only guarantee a deeper recession and more widespread suffering.  Rather than obsessing over deficits and debt, the government needs to turn its focus to jobs, sales and quality of life.

Ellen Brown is president of the Public Banking Institute and the author of eleven books.  She developed her research skills as an attorney practicing civil litigation in Los Angeles.  In Web of Debt, she turns those skills to an analysis of the Federal Reserve and “the money trust.”  Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.