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Peterson/CBO Beat for Austerity Goes On!

6:53 pm in Uncategorized by letsgetitdone

Recently, I’ve been writing about oligarchs advocating for entitlement cuts and austerity. I’ve discussed attacks on entitlement benefits for the elderly from Abby Huntsman (of MSNBC’s The Cycle) and Catherine Rampell (a Washington Post columnist), both the children of well-off individuals. These posts have come in the context of the English language release of Thomas Piketty’s Capital in the Twenty-First Century, and the more recent pre-publication release of a study by Martin Gilens and Benjamin I. Page using quantitative methods and empirical data to explore the question of whether the US is an oligarchy or a majoritarian democracy. They conclude:

”What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”

With this as a backdrop, today I want to de-construct a recent statement by Michael A. Peterson, President and COO, of one of the centers of American oligarchy, the Peter G. Peterson Foundation (PGPF), and the son of the multi-billionaire Peter G. Peterson, commenting on the CBO’s Report earlier this month, on its updated budget projections for 2014 – 2024. Read the rest of this entry →

More Misdirection from Rampell in the Service of Generational War

11:28 am in Uncategorized by letsgetitdone

In my last post, I took issue with a recent column by Catherine Rampell, who tries to make the case that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. Rampell relies on an Urban Institute study to make her case. Since that post, she’s offered another that replies to some of the questions raised by commenters on her earlier effort. I’ll reply to that new post shortly, but first I want to present key points emerging from my analysis of Federal monetary operations in my reply to her earlier post. See that post for the full argument.

Catherine Rampell sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them.


First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its reserve keystroking into private sector account activities that today represent most of the reality of Federal spending. Read the rest of this entry →

Misdirection: Rampell Views Entitlements Through the Generational War Lens

9:28 am in Uncategorized by letsgetitdone

Some of the favored children of the economic elite who have a public presence, work hard in their writing and speaking to divert attention from inequality and oligarchy issues by raising the issue of competition between seniors and millennials for “scarce” Federal funds. That’s understandable. If millennials develop full consciousness of who, exactly, has been flushing their prospects for a decent life down the toilet, their anger and activism might bring down the system of wealth and economic and social privilege that benefits both their families and the favored themselves in the new America of oligarchy and plutocracy.

Catherine Rampell sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them.

Here and here, I evaluated Abby Huntsman’s arguments for entitlement “reform,” and, of course, Pete Peterson’s son, Michael fights a continuing generational war against seniors in pushing the austerian line of the Peterson Foundation. Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:

Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.

She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:

But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. (Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.)

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”

After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:

”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.

This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.

To draw on the benefits of these programs seniors were required to pay FICA contributions during their working lives. These payments, according to the law, give them the right, in other words, entitle them, to receive the benefits of SS and Medicare that were mandated by Congress.

No one ever said to today’s seniors that there was some rule in the SS and Medicare programs requiring that their payments needed to, or ought to, correspond to the amount of their total benefits, since that was never the deal legislated by Congress. No, the deal was: “You pay your FICA contributions, and you get your benefits at retirement.” Simple as that!

So, people who followed the SS and Medicare rules and made their payments over the years rightly view themselves as having paid for their entitlement benefits, regardless of whether their cumulative FICA payments fall short of or exceed the cumulative sum of those benefits. Why shouldn’t they, and why is Rampell implying that the deal implicit in our major entitlement programs is anything different?

Additionally, I’m afraid that Rampell is also wrong when she says that today’s seniors “paid for” their parents’ entitlements. They certainly paid FICA and Medicare-related contributions, of course; but it is not true that these revenues paid for anything, in spite of Federal reports that appear to link the two, or the accounting that shows that the Social Security Administration has built up a $2.8 Trillion credit against future expenditures, and that Medicare has a much smaller volume of credit to be used for such expenditures. Read the rest of this entry →

The Village Still Ignores the Most Important Point

8:48 am in Uncategorized by letsgetitdone

In recent posts I reviewed two commentaries by Abby Huntsman on Social Security and other entitlements, also noting points made in other critiques of her narratives. Abby’s commentaries are here, and here, and my critiques are here and here. The most important point I emphasized in my two rebuttals is that there are no fiscal solvency or sustainability issues related to Social Security, or other parts of the safety net, but that the issues involve only the willingness of Congress to appropriate entitlement spending, and either the removal of current constraints on Treasury to spend appropriations such as the debt limit, or the willingness of the Executive Branch to use its current legislative authority either to a) generate sufficient seigniorage from platinum coins to spend such appropriations; or b) use a type of debt instrument, such as consols, which aren’t counted toward the debt limit.

The day before I posted my second reply to Abby Huntsman, Richard J. Eskow and WeActRadio posted this video clip from Eskow’s radio broadcast. In his critique, Richard shows that Abby Huntsman’s treatment of Social Security and entitlements is full of misleading information and hews closely to the narrative offered by Alan Simpson, Pete Peterson, and organizations supported by Peterson funding, and he calls for the MSNBC producers of “The Cycle” to issue statements correcting the facts, and to give Abby’s co-hosts on The Cycle a chance to reply to her about social security. Read the rest of this entry →

An Even Better Way to Get Money Out of Politics

1:13 pm in Uncategorized by letsgetitdone

We can get out from under Citizens United and corporate control of our elections.

A couple of weeks ago, I posted on a simple solution to the problem of getting money out of politics. I said then:

If the election you’re voting in is virtually a two candidate contest, then vote for the candidate, who, in combination with her/his supporters spends the least amount of money. In a virtual multi-candidate contest, do the same thing.
That’s the proposal, in its simplest form. Its objective is to reverse the current race to the bottom in buying elections by ensuring that there would be a powerful incentive to start a race to the top to raise and spend as little money as possible in campaigns. That incentive is that if you spend too much you lose, pure and simple.
The other rationale for the rule is that the person who raises and spends the least amount of money for a campaign, will generally be the person who is “less bought” by wealthy people, financial interests, and large corporations. Eventually, if the rule took hold it would no longer be said of the Congress that “the banks own the place.”

I cross-post at a number of sites, and at Daily Kos I received a comment from “Musial,” which being of a certain age, engaged me immediately. The comment advised me to read the “money outta politics” solution, which “Musial” felt was superior to my own. It says:

Citizens commit to one-issue voting: the MOP bill. If a candidate pledges, in writing, to vote for MOP, a voter will deliberately put aside all the other political, economic, and social issues for that one election. No matter where the candidate stands on ANY other issue, if he/she supports MOP, you vote for; if not, against. Incumbents who refuse to endorse the MOP legislation are turned out of office. This can be tough for many people. An incumbent may be good on many issues. An opposing candidate may stand for things you despise. But if that candidate is the only one who pledges to support MOP, or the incumbent will not, he/she will get your vote.

Why? Because until we get money out of politics, ALL other issues will continue to be corrupted by big money campaign contributions.

I think this is good, but it doesn’t prevent people who get big money from the Kochs or other sources supported by other billionaires and big corporations from saying that they support the “money outta politics” solution and then reneging when they’re elected. The probability of candidates doing that increases to the degree they are funded by big money contributors, because many of the newly elected that if they have both the advantages of big money in future elections, then they will win. So, I propose adding my simple solution to the effects of big money to this one and voting for the candidate with the least money who pledges to enact the “money outta politics” solution.

The money outta politics solution, apart from the idea of using petitions and single issue voting, proposes legislation whose core is for Congress to use its Constitutional authority to strip jurisdiction for certain legal challenges from the US Supreme Court. In addition, the proposed legislation called “The Doris “Granny D” Haddock Act,” also contains many other provisions controlling the role of money in politics, and making elections more fair, along with a retroactive application section that repeals Supreme Court decisions in Buckley v. Valeo, 424, US. 1 (1976), and Citizens United v. Federal Election Commission, 558 U.S. 50 (January 21, 2010), as well as others.

That provision would restore all laws invalidated by these decisions, except ones in conflict with other provisions of the proposed legislation. I’ll leave it to my readers to follow the link I’ve provided and read the full legislative proposal. But let me emphasize strongly that I think it is the best proposal for getting money out I’ve seen, and a lot more feasible than the constitutional amendment proposals circulating right now, because they require so many hurdles to clear, so much time to get done, and will use language both easy to loophole and subject to Supreme Court misinterpretation. This combined solution, in contrast, requires only a Congress committed to legislate it by simple majority and that, in turn, only requires applying the two simple rules stated initially.

In short, we can get out from under Citizens United and corporate control of our elections. We just have to win one time and change the landscape, by constraining this runaway anti-democratic Supreme Court. We can do that, and save our democracy can’t we?

(Cross-posted from New Economic Perspectives.)

Read the rest of this entry →

The President’s Leverage: He Can Go Platinum

10:32 pm in Uncategorized by letsgetitdone

Well, that’s over. The President had a chance to go “over the cliff,” bargain hard with the Republicans, get more of what he said he wanted at the price of perhaps some more days of crisis with extreme pressure building on the Republican caucus, and he blinked. I don’t much care that he blinked on tax rates for the top 2% and on inheritance taxes, because tax rate increases for purposes of deficit reduction simply aren’t needed for getting deficit spending needed to create jobs, as the rest of this post will show. Here’s what I care about:

– First, he claimed to be after extending the partial payroll tax holiday; but he didn’t get that, a $125 Billion would-be stimulus failure that is likely to cost at least a million jobs;

– Second, he claimed to be trying to get the debt ceiling issue off the table for at least two years, and he didn’t even get anything to deal with it in the bill;

– Third, he claimed to want to resolve the sequestration issue, but only got that can kicked down the road for two months;

So, in sum, he’s already achieved some unneeded austerity with this “negotiation” and, in addition, he’s set things up beautifully for a truly extreme episode of extortion by the Republican House over the next couple of months, as Congress faces the upcoming sequester, debt ceiling, and Continuing Resolution (CR) conflicts. Why did he insist on making his year-end deal, rather than allowing things to kick over to the new Congress and negotiating a better one?

There are different theories about that. One, is that he wanted, at all costs, to avoid Wall Street panicking and then tanking, even if, only temporarily. A second is that he has good “progressive” motives, but he’s just a lousy negotiator, who just can’t avoid first establishing firm positions and then showing the other side that he will always cave in if they, in turn, stand firm. A third theory, and the one I favor, is that since 2009 he’s been conducting a careful campaign to get Americans to accept austerity through forced deficit reduction including heavy cuts to the social safety net programs that Americans love so well.

During this campaign, he’s ignored the evidence from Europe and elsewhere that austerity doesn’t work and hurts most of the people, most of the time. He’s also ignored all the polling data showing how Americans feel about Social Security, Medicare, and Medicaid. And he has moved slowly, deliberately, persistently, and in concert with allies outside the Administration like Peter G. Peterson, high-level Wall Street Executives, and MSM media personalities and journalists to create a consensus around the idea that “entitlement reform” is both inevitable and necessary for long-term fiscal sustainability. Finally, he has “negotiated” with Republicans during a series of “shock doctrine” crises to try to gradually implement austerity, while making sure that the Republicans, rather than his own party end up bearing the blame for the end result of austerity policies.

The results of the “cliff” negotiations have now set up a confluence of three events: the sequestration; the debt ceiling; and the CR; creating the occasion for the mother of all fiscal “shock doctrine” negotiations over the next three months. This confluence can be seen as an intentional emergence of the conflict between the Republicans and the “progressive” President Obama, or it can be seen as the result of a very long-term conservative campaign setting the stage for austerity, and a comprehensive attempt to weaken the social safety net.

I won’t try to make the case that the dangerous confluence we’re about to face is due to a deliberate staging by the President, even though I suspect that it is. Nor will I try to make the contrary case that the President has excellent motives, but stumbled into this mess due to incompetence at negotiating, and the Republican victories in the House in the past two elections, for which his supporters might say, he was blameless. What, I’ll do instead, is try to show that either way, the President has leverage to get what he wants.

If His Game Is Deliberate Austerity?

Then, of course, he’s maneuvered us into a situation where, he will claim, there either has to be a Government shutdown, frightening to most people, or concessions to Republican demands for cutting discretionary programs and entitlements. He will be in a very good position then, to regale all of us with horror stories about the consequences of shutting down the Government for weeks until the “crazy” Republicans capitulate; compared to the lesser evil of making “balanced” spending cuts among defense, discretionary, and entitlement programs, while he prepares to reluctantly give into the hostage takers to avoid disaster; while constantly letting us know that as the adult in the room he must arrive at a “compromise” settlement. So, if his game is deliberate austerity, then he will have plenty of leverage to get what he wants.

If His Game Is to Avoid Cuts That Will Hurt the Economy and the Safety Net?

Today, most people commenting on the fiscal cliff agreement are assuming that this is his game, and are saying that the President has given away his leverage for future deal-making. Their logic is that he’s already made deals on the tax rate cuts and on the inheritance tax rates, so that he has little left to offer the Republicans except painful cuts in programs most of the American like. This, however, isn’t true.

First, the President still has some leverage when it comes to defense cuts. Republicans don’t want those at all. So, if he’s willing to cut there; he can sincerely threaten cuts and then trade for their sparing popular programs from the ax.

But, second, the main thing being ignored by most of the strategists commenting on the morning after is the President’s ability to change the fiscal context of the coming negotiations from one of apparent scarcity “justifying” austerity to one where spending capacity is so plentiful, that Congress will be hard-pressed to impose austerity, because its justification in the form of apparent limitations on spending capacity will just seem silly. Now, that can translate into leverage in the negotiations!

How can it be done? Through the use of Platinum Coin Seigniorage (PCS).

PCS Variations

Here are some variations on PCS, an idea first proposed by beowulf. (Carlos Mucha).

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation.

The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. Of course, this proposal is a solution to the debt ceiling problem alone. It would prevent a default crisis caused by anti-government tea party Republicans. But, it wouldn’t do very much to defeat the austerity mind set in fiscal policy.

A second proposal is to mint a $6.7 T coin to pay back all debt held by the Fed, and all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.7 T in headroom relative to the debt ceiling, that’s more than enough to carry us through the 2016 elections without breaching the ceiling. Again, this wouldn’t result in any “money” immediately going into circulation, but over time SS and Medicare payments to individuals and organizations would be adding to bank reserves without any reserves being withdrawn from the private sector due to debt issuance.

This alternative would render the debt ceiling problem a dead letter for some time to come, and it also might take some of the austerity pressure off. But it probably wouldn’t end the austerity drive, because the deficit hawks would still point to long-term problems in entitlements that would be projected as running up the public debt in future years.

A third proposal for applying PCS is to mint a coin with face value large enough to cover the $6.7 T intra-governmental and Fed debt repayment, plus all debt to the non-government sector coming to maturity during the next four years, and all Congressional Appropriations expected to require deficit spending through the 2016 elections. I’ll estimate, roughly, that a $20 T coin is enough for that, including about $6.2 T to more than close the expected gap between tax revenues and Government spending through the 2016 elections, and the rest for paying down the national debt. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past 2 years or so, that would result in a remaining public debt outstanding of roughly a few trillion dollars in long term debt, which would please the bond markets except for the fact that the US wasn’t issuing any more debt instruments, which would probably make the bond vigilantes scream for those safe harbor debt instruments again.

A more important aspect of a coin this large is that it takes the deficit/debt issue very much off the table, since there would be no new debt issuance needed until after 2016, and because most of the seigniorage would be used to pay down debt the US would then have only about 15% of its current debt subject to the limit. In other words, it would take the austerity meme off the table completely over the next four years and even after that there would be a lot of room between the outstanding level of debt and the debt ceiling.

Much of the pressure now being applied to entitlement programs would also be gone. So, progressives could be much more expansive in supporting full employment programs, education, infrastructure, higher entitlement benefits, Medicare for All and other things the country needs.

If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there will be no need for all the profits from the platinum coin to be used completely for deficit spending between now and 2016. In fact, if the right jobs creating program is immediately enacted, as much as $3 T could be left, by the end of 2016. So, this is a much more progressive alternative than the first two. But in itself, it doesn’t provide a continuing ability for the Treasury to create reserves directly to support deficit spending. The nation could still slip back into the regressive money creation practices after 4 or 5 years, and the conservative, neoliberal bias of fiscal politics could be restored.

So far, I’ve discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here’s a fourth, enough to handle even generous Congressional appropriations and deficit spending for at least 15 – 20 years, until 2032 and beyond.

Why not mint a $60 T coin?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the Congressional mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts by having the funds (electronic credits) in the public purse (the TGA). In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution, as it has under current platinum coin seigniorage legislation.

But the value of the $60 T coin, and the profits derived from it, is that it is a concrete reminder of the Government’s continuing ability to buy whatever it needs to meet public purposes, and its continuing ability to harness the authority of the Central Bank to create reserves to support the needs of fiscal policy. It demonstrates very clearly that the Government cannot run out of money, and that the claim that it can is not a valid reason for rejecting spending that is in accordance with public purpose.

So, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what’s in the public purse, and it is unlimited as long as the Government doesn’t constrain itself from creating credits in its own accounts. With PCS, its capability could be and should be publicly demonstrated by minting the $60 T coin, and getting the profits from depositing it at the Fed transferred to the Treasury General Account (TGA).

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent, and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

This fourth alternative is the one that best solves both the debt ceiling problem and the problem of taking austerity, justified by “we’re running out of money,” off the table. The debt ceiling would no longer be an issue if the Treasury immediately paid off $6.7 T in Fed and intra-governmental debt, and was poised, with the money in its account, to pay off the rest of the debt subject to the limit as it falls due. Nor would there be any justification for austerity policies if the Treasury had a public purse with $44 T of unearmarked funds in it to cover future deficit spending. So, this is the progressive alternative, the one that changes the political context of fiscal policy debates for the foreseeable future. It also gives progressive enough time to fight a major political battle that ought to and must occur; the battle to free the Fed from control by Wall Street and banking interests and to make it accountable to the people by placing it under the authority of the Treasury Department, and our nationally elected executive, the President.

What about inflation? Well using PCS isn’t intrinsically inflationary. For the reasons why, see my previous post. I outline how to justify it politically in the next and final section.

The Speech

If the President wanted to emulate the great Democratic Presidents of the past, end austerity and decide to rise above the debt ceiling controversy, safeguard the social safety net, and do something really, really important from the perspective of history by using $60 T coin seigniorage to short circuit the upcoming fights over the debt ceiling and the budget, then there would be a spectacular uproar in the Congress and the Press over what he had done. All kinds of overblown and downright crazy claims would be made because the President’s action would shock people, everyone would have a tough time getting their minds around it, and the media would report on what was going on in a very sensationalist way using stereotypes created by the neo-liberal perspective that journalists at places like the WaPo, NYT, WSJ, and CNN are superficially well-schooled in. Places like CNBC and Fox would be absolutely foaming at the mouth in response to something like this, and Geithner might very well resign over it, as might Ben Bernanke, since he’d be forced to have the Fed credit the coin.

There would also be an immediate move in Congress to repeal the 1996 law that enabled the President’s action. This would fail however, because even if it got through the Congress, the President would simply veto it. The opposition couldn’t possibly get the 2/3 vote necessary to override the veto. Even if by some miracle, repeal got through, however, it would be too late. The coin would have done its work and the $60 T would be in the Treasury General Account, a fait accompli, and a vivid demonstration that the government can create as much money as it wants, and can only run out of money by choice.

However, the President would then have to defend himself with a political campaign aimed at persuading the public that his move was a bold and liberating move and the first step in finally getting out of this protracted economic depression. And yes, he should use the D-word, whatever the Republicans, and the so-called “fact-checkers” say about it. And he should also begin the campaign by explaining the issuance and deposit of the first $60 T coin in a high profile TV address to the public, the following way.

My Fellow Americans:

1) Until now the Treasury has been borrowing the money the Government created back from the private sector, in order to cover our deficit spending, so the national debt has been steadily growing.

2) That’s silly! According to the Constitution, this Government, of the people, by the people, and for the people, is the ultimate source of all US money. So why should we ever borrow US money back and pay interest on it, since we can create it any time by the authority of the Constitution and Congress?

3) Congress has also imposed a debt ceiling, so, if and when we reach it, we can’t borrow back our own money without Congressional approval, anyway, and lately Congress has been using the need to raise the debt ceiling as an excuse to extort cuts in safety net and discretionary programs that the majority of Americans support.

4) So, on my order, and in accordance with legislation passed by Congress in 1996, and with the US Code, the US Mint has issued $60 Trillion using a single 1 oz. platinum coin, and deposited it at the NY Fed. It’s legal tender, so the Fed credited the Mint’s Public Enterprise Fund (PEF) account with $60 Trillion in US Dollar credits using its unlimited authority from Congress to create them.

5) This is not inflationary because the Fed will put our coin into its vault, and keep it there permanently out of circulation, and the Treasury will use the $60 T in USD credits only to pay back the national debt and to spend what Congress has already approved, which is only a small fraction of these credits and far from the amount needed to cause inflation.

6) My action ends any possibility of a debt ceiling crisis in February or March, because we have no further need to borrow our own money back in the markets, and that’s why we don’t need the tea party or other Republicans, or even my fellow Democrats to agree to raise the debt ceiling any more.

7) Now the Treasury, has plenty of money, much more than we need, in fact, to pay for all appropriations Congress has already approved for 2013, and may approve in March, including all deficit spending and, again, we won’t have to borrow our own money back, either to repay debts or to implement future deficit spending.

8) So, we will pay all Government debts which will come due in 2013 and 2014. Treasury securities and all other debts included. We will also pay back all debts held by other agencies of Government and the Federal Reserve. When we do this we will lower the national debt by about $12 T, reducing the “debt burden” by about 75% by the end of 2014, and creating an actual Social Security trust fund with 2.7 T in cash reserves in it; and again, to do this we don’t have to borrow any of our own money back, and we will also reduce our interest costs on the outstanding national debt all through the remainder of 2013, 2014, and beyond until it is all paid off.

9) None of the $60 T in new credits created by our actions is “money” in the private sector economy until the Treasury spends it. For now it is just capability to spend awaiting the appropriations of Congress to mandate deficit spending, should it need to compensate for the reduction in demand, probably close to 10% of GDP right now, caused by your own desire to save (which we want to do our best to facilitate), and your desire to import goods from foreign nations.

10) We have created $60 Trillion in new credits even though we probably needed less than that to cover anticipated deficit spending and debt repayment until at least 2028. The reason for this, is that I wanted to have enough capability created in the Treasury account, so that the national debt could be completely paid off (except for a small amount in very long-term Treasury debt still not mature by 2028), and all projected Federal deficits covered over the next 15 years, even extraordinary deficit spending needed to be performed without further borrowing over this period.

11) Of course, we can always make new coins if our projections about future deficits turn out to be wrong; but I thought it would be best to ensure that all $16.4 T plus of the “debt burden” can be completely eliminated from our political concerns; and also to provide enough funds in our spending account at the Fed, so that it would be very clear to Congress and all newly elected Representatives and Senators, that even though they, as required by the Constitution, continue to control the purse strings, the national purse is very, very full, and that we would be able to cover from the Treasury General Account whatever deficit spending for the public purpose, including for full employment, Medicare for All, infrastructure, education, and other things, that Congress, in its wisdom, chooses to appropriate now, before the next election, and for some elections to come.

Good night, my fellow Americans! Rest well knowing that our beloved country won’t be defaulting on any of its debts when the debt ceiling is reached, and that I’ve prevented this without going over the legal debt ceiling, or borrowing any more, by providing money for spending mandated appropriations, in compliance with the laws authorizing Platinum Coin Seigniorage, while supporting the Constitution’s prohibition against our Government ever defaulting on its debts. I hope that, in the future, everyone in Congress will obey the 14th Amendment’s prohibition against questioning the validity of Federal Government debts, and think twice before they indulge themselves in loose talk about the possibility of the Federal Government defaulting on its obligations.

America will always pay its debts in US Dollars according to the terms of the contracts it has concluded, and in line with the pension payments and other obligations that it owes. Neither you, nor the rest of the world need ever doubt that again! Nor need you ever think that our Government is running out of money for the things we must do. We can never run short of money unless Congress refuses voluntarily, to use its unlimited constitutional authority to make more of it. But as long as it delegates to me the authority to create high value platinum coins to cover our needs, you can be sure that running out of US money will never happen!

(Cross-posted from New Economic Perspectives.)

The $60 Trillion Petition for Taking Austerity Off The Table

11:16 am in Uncategorized by letsgetitdone

I have a petition to President Obama up at: http://signon.org/sign/end-austerity-mint-the It’s about minting that $60 T coin and ending austerity. The wording of the petition is:

”A 1996 law gives the Executive Authority to mint coins w/arbitrarily large face values and deposit them at the Fed. The President should immediately mint a $60 Trillion coin, and use the proceeds to pay off the national debt completely, cover all likely deficit spending by Congress over the next 15 years, and take the issue of spending cuts in programs that benefit the 99% off the table! Google “$60 Trillion coin” for background!”

The purpose is:

“Ending the emphasis in Congress on deficit reduction rather than the merits of policy proposals to create full employment, Medicare for All, & rebuilding education, US infrastructure, & energy foundations.”

A $60 Trillion Proof Platinum Coin could close the spending/revenue gap entirely in any fiscal year, and technically end deficit spending, while still retaining the gap between tax revenues and spending that can produce full employment. In addition, profits from the coin could be used to pay off the “national debt,” and would also remove the need to issue any more public debt in coordination with deficit spending for at least 15 years.

However, a $60 T coin is not only a solution for ending public debt, it also has the potential to take off the legislative/fiscal table the whole austerity mind set that bedevils our current budgetary process and provides it with a constraining conservative cast focused on narrow monetary costs considerations, rather than a broader progressive framework that weighs the real costs and benefits of proposed fiscal activities of the Federal Government.

The $60 T coin can free the Government from narrow green eye shade concerns and force both Congress and the Executive to evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than their impact on Federal deficits and surpluses.

For example, currently we see before us proposals to drastically reduce the USPS in size after years of reduction in service and personnel and also proposals to cut already austere, by modern industrial nation standards, Social Security and Medicare programs, as well as massive spending cuts in other entitlement and discretionary programs. Why are we seeing these proposals? Would we be seeing these proposals if we were rapidly paying off the debt and we also had $ 44 Trillion in the Treasury General Account to be used for future deficit spending?

We’re seeing them now because of the effectiveness of a 35 year propaganda effort by deficit and debt hawks who have persuaded many Americans that the government is like a household which has enormous debt that will be burdensome to pay back. This view is false. But we can’t educate people about this in the near term. We can’t counter the deficit hawk propaganda with our own messages about the complex facts of government finance.

On the other hand, if we mint that $60 T coin, pay off the debt, and still have $44 T left in the TGA, then all the effects of the 35 year propaganda campaign will immediately go away. The debt will just no longer be an issue. Then the issues will be about what people need, and what improvements we can make by working together through our Federal Government.

That gets to be the fulcrum of the new politics, not debt. I think that’s where we want it to be. If you agree, you’ll follow the link above and sign my petition!

If you need more background to make a decision see here and here. But please consider this. I have only 5 signatures so far and I need 50 to get to the next stage of the petition process. So, if you really want to end austerity, then let’s get this over the first hurdle and let’s see how far we can take it into the public’s consciousness.

(Cross-posted from Correntewire.com.

Beyond Debt/Deficit Politics: The $60 Trillion Plan for Ending Federal Borrowing and Paying Off the National Debt

7:46 pm in Uncategorized by letsgetitdone

Well, here we are again, House leaders have agreed on a compromise continuing spending resolution at the same level as before from October 2012 through January 2013. It’s likely now that the President(s?) will probably try to make the money available for deficit spending as of today, last through the time period of the continuing resolution so that one deal including both the budget and raising the debt limit can be made by March of 2013. According to the July 31, Daily Treasury Statement, there’s $499,424,000,000 left until the debt ceiling. That’s an average of $62,428,000,000 deficit spending per month for the next 8 months, ending March 31, 2013.

For the past 10 months, average deficit spending was at $114,802.3 Billion per month, and that amount was not enough stimulus for a full recovery. So, the likely 46% reduction in average deficit spending over the next 8 months is unlikely to be any more effective in pulling us out of the extended employment recession we are experiencing, than the deficits in the preceding 10 months were. On the contrary, deficit spending over the next 8 months is unlikely even to allow us to maintain the unemployment levels we have now. So, what ought to be done?

The most important thing that can be done is to change the fiscal context of politics from one of apparent scarcity “justifying” austerity to one where spending capacity is so plentiful, that Congress will be hard-pressed to impose austerity, because its justification in the form of apparent limitations on spending capacity will just seem silly. In the summer of 2011 I proposed a solution to the debt ceiling crisis calling for the minting of a $30 T platinum coin to overcome the problem and also improve the fiscal context for progressive legislation. Now, I want to update that post and apply it to the present political situation, where based on the above events, the next serious fiscal crisis is likely to happen in February and/or March of 2013. So, here’s the update.

The Law and Proof Platinum Coin Seigniorage

Congress provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. These coins are legal tender. So, when the Mint deposits them in its Public Enterprise Fund account at the Fed, the Fed must credit that account with the face value of these coins. This difference between the Mint’s costs in producing the coins and the credit provided by the Fed is the US Mint’s profit. The US code also provides for the Treasury to periodically “sweep” the Mint’s account at the Federal Reserve Bank for profits earned from these coins. Coin seigniorage is just the profits from these coins, which are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account (TGA), narrowing or eliminating the revenue gap between spending and tax revenues. Platinum coins with huge face values, here $1, $2, and $3 Trillion coins have been mentioned, could close the revenue gap entirely in ant fiscal year, and, if used often enough, technically end deficit spending, while still retaining the gap between tax revenues and spending that can produce full employment in an economy like the US’s, with private sector savings and a current account deficit.

Proof Platinum Coin Seigniorage (PPCS) is now frequently and increasingly being mentioned on popular blogs as a possible solution to the debt ceiling crisis. It is one of the two solutions currently being suggested that requires no further legislation from Congress and also no challenge to either the debt ceiling law itself, or to the Congressional prohibition on the Fed extending credit to the Treasury.

However, PPCS is not only a solution to avoid a debt ceiling crisis. It also has the potential to take off the legislative/fiscal table the whole austerity mind set that bedevils our current budgetary process and provides it with a constraining conservative cast focused on narrow monetary costs considerations, rather than a broader progressive framework that weighs the real costs and benefits of proposed fiscal activities of the Federal Government.

PPCS can free the Government from narrow green eye shade concerns and force both Congress and the Executive to evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than their impact on Federal deficits and surpluses.

Government deficits and surpluses are important in themselves when the supply of Treasury funds is restricted to the amount that can be taxed or borrowed; but they are not intrinsically important when, through using PPCS, the supply of Federal funds is limited only by the President’s or the Treasury Secretary’s orders to the US Mint to use PPCS to fill the public purse without either taxing or borrowing

The PPCS alternative comes in more than one flavor. It’s actually a class of alternatives. Here are some different coin seigniorage proposals.

PPCS Alternatives

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation.

The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. With this alternative it is hard for critics to raise the inflation issue, since the new credits created by the coin are never spent into the economy, but are only used to buy back the debt held by the Fed because that debt counts against the debt ceiling. Of course, this proposal is a solution to the debt ceiling problem alone. It would prevent a default crisis caused by anti-government tea party Republicans. But, it wouldn’t do very much to defeat the austerity/deficit hawk mind set in politics.

One objection made to coin seigniorage proposals is that the high face values of the coins would drive up the market price of platinum. However, the Mint is already scheduled to produce 15,000 platinum coins having relatively small arbitrary face value. There would be no conceivable need for more than enough material for 100 very high face value proof platinum coins, and at least one alternative PPCS proposal would require only two coins to implement. So there really is no platinum supply/market price issue.

Having said that, every time the Mint creates a high value coin for deposit at the Fed, it would have to create a duplicate coin, so that it had the means to swap with the Fed if it ever decided to redeem the coin for currency of equal value. This is not a likely event; but it is possible. So, it would be necessary to create duplicate coins. The Fed would place one of the coins in its vault after deposit and the Mint would place the other coin in one of its vaults.

A second proposal is to mint a $6.7 T coin to pay back all debt held by the Fed, and all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.7 T in headroom relative to the debt ceiling, that’s more than enough to carry us through the 2014 elections without breaching the ceiling. Again, this wouldn’t result in any “money” immediately going into circulation, but over time SS and Medicare payments to individuals and organizations would be adding to bank reserves without any reserves being withdrawn from the private sector due to debt issuance. But this isn’t a change from the present situation so it would not add to inflation.

This alternative would render the debt ceiling problem a dead letter for some time to come, and it also might take some of the austerity pressure off. But it probably wouldn’t end the austerity drive, because the deficit hawks would still point to long-term problems in entitlements that would be projected as running up the public debt in future years.

Some might think this alternative would be inflationary, because they believe that net reserves added to the private sector are more inflationary than debt instruments added would be. However, there’s plenty of evidence that debt instruments provide much higher leverage than added reserves, and, in addition, they lead to greater interest payments than reserves do, even if the Fed decides it wants to pay interest on reserves, which it doesn’t always do.

A third proposal for applying coin seigniorage is to mint a coin with face value large enough to cover the $6.7 T intra-governmental and Fed debt repayment, plus all private debt coming to maturity, and all Congressional Appropriations expected to require deficit spending. I’ll estimate, roughly, that a $20 T coin is enough for that, including about $4.0 T to more than close the expected gap between tax revenues and Government spending through the 2014 elections, and the rest for paying down the national debt further. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past 2 years or so, that would result in a remaining public debt outstanding of roughly a few trillion dollars in long term debt, which would please the bond markets except for the fact that the US wasn’t issuing any more debt instruments, which would probably make the bond vigilantes scream for those safe harbor debt instruments again.

Again, would this coin seigniorage proposal be inflationary? Well, the intra-governmental and Fed debt repayments won’t be, for reasons already stated. Also, there’s no reason to believe that the repayment of further debt will be, unless one believes, that reserves swapped for bonds, and not swapped again for more bonds, is inflationary. But, other than the interest payments which certainly add to private sector assets somewhat, payback of debt instruments is just an asset swap, followed by destruction of securities. There’s no addition of Net Financial Assets (NFA) to the private sector.

How about the seigniorage profits of $4.0 T set aside for closing the gap between tax revenues and spending during the next two years? Will that be inflationary? Actually, I don’t know if Congress will appropriate a $4.0 T spending/tax revenue gap over the next two years or so, but if such a gap is needed to move towards full employment, and if it does, then the coin profits will cover it without new Federal borrowing. And as long as Congress does the right kind of spending and creates a large enough gap to add sufficiently to private sector assets to support full employment, their appropriations, backed by PPCS won’t be inflationary.

If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there will be no need for all the profits from the proof platinum coin to be used completely between now and 2014. In fact, if the right jobs creating program is immediately enacted, as much as $2T could be left before the President might want the US Mint to strike another proof platinum coin.

So far, I’ve discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here’s a fourth, enough to handle even generous Congressional appropriations and deficit spending for at least 15 years, until 2025 and beyond.

Why not mint a $60 T coin and then another one in case the Fed gets obstreperous sometime down the road and presents the $60 T coin, that was deposited in the Mint PEF account, for redemption?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the Congressional mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts by having the funds (electronic credits) in the public purse (the TGA). In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution. But the value of the $60 T coin, and the profits derived from it, is that it is a concrete reminder of the Government’s continuing ability to buy whatever it needs to meet public purposes. It demonstrates very concretely that the Government cannot run out of money, and that the claim that it can is not a valid reason for rejecting spending that is in accordance with public purpose.

So, in reading what follows, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what’s in the public purse, and it is unlimited as long as the Government doesn’t constrain itself from creating credits in its own accounts. With coin seigniorage its capability could be and should be publicly demonstrated by minting the $60 T coin, and getting the profits from depositing it at the Fed transferred to the TGA.

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

This fourth alternative is the one that best solves both the debt ceiling problem and the problem of taking austerity, justified by “we’re running out of money,” off the table. The debt ceiling would no longer be an issue if the Treasury immediately paid off $6.7 T in Fed and intra-governmental debt, and was poised, with the money in its account, to pay off the rest of the debt subject to the limit as it falls due. Nor would there be any justification for austerity policies if the Treasury had a public purse with $44 T of unearmarked funds in it to cover future deficit spending.

At that point we’d be free to seriously debate: 1) full payroll tax cuts for both employers and employees until full employment is reached; 2) revenue sharing payments to the States of $1,000 per person to save and restore State government employment to pre-crisis levels; 3) creating a Federal Job Guarantee program which would guarantee a job offer at a living wage with full fringe benefits to anyone seeking full time work; 4) passing HR 676, John Conyers enhanced Medicare for All bill; 5) public education reforms to create a world class educational system open to all, from preschool to graduate school; 6) passing an infrastructure program re-creating the energy foundations of the United States and rapidly eliminating dependence on fossil fuels; 7) passing new legislation stopping human-created climate change; and passing a $3 Trillion infrastructure program for renewing the US’s infrastructure.

This brings us again to inflation. I’ve already pointed out that repaying the debt won’t be inflationary. So, the inflation issue then focuses on the $44 T in seigniorage profits in the TGA that would be used to cover gaps between Federal spending and tax revenues in the years following minting the $60 T coin. How much of that is spent ,and when, will depend on what Congress appropriates. To avoid demand-pull inflation, the kind caused by Government deficit spending, Congress must not spend more than is needed to create the aggregate demand necessary for full employment.

How much that is will depend on the savings and import desires of the American people. Right now, desired savings seems to be at the level of 6% of GDP, while import desires greater than export amounts seem to be at roughly 4% of GDP. So, roughly speaking that tells us that a full employment budget should involve a deficit of $1.6 T or 10% of GDP, give or take a few hundred billion depending on the fiscal multipliers associated with the specific government spending involved. As long as deficit spending is within those limits demand-pull inflation will not occur.

This doesn’t mean that cost-push inflation caused by supply problems, or monopolistic activities, or other supply bottlenecks won’t happen. But these won’t be caused by excessive government deficit spending, and can’t be cured by backing off such spending or by raising taxes. They have to be treated in other ways. The best discussion of the relationship between coin seigniorage and inflation has been provided by Scott Fullwiler.

The Speech

If the President decided to rise above the debt ceiling controversy, safeguard the social safety net, and do something really, really important from the perspective of history by using $60 T coin seigniorage to short circuit the upcoming fights over the debt ceiling and the budget, say in January, or better still during the lame duck, then there would be a spectacular uproar in the Congress and the Press over what he had done. All kinds of overblown and downright crazy claims would be made because the President’s action would shock people, everyone would have a tough time getting their minds around it, and the media would report on what was going on in a very sensationalist way using stereotypes created by the neo-liberal perspective that journalist at places like the WaPo, NYT, and CNN are superficially well-schooled in. Places like CNBC and Fox would be absolutely foaming at the mouth in response to something like this, and Timmy Geithner might very well resign over it, as might Ben Bernanke, since he’d be forced to have the Fed credit the coin.

There would also be an immediate move in Congress to repeal the 1996 law that enabled the President’s action. This would fail however, because even if it got through the Congress, the President would simply veto it. The opposition couldn’t possibly get the 2/3 vote necessary to override the veto. Even if by some miracle, repeal got through, however, it would be too late. The coin would have done its work and the $60 T would be in the TGA, a fait accompli, and a vivid demonstration that the government can create as much money as it wants, and can only run out of money by choice.

However, the President would then have to defend himself with a political campaign aimed at persuading the public that his move was a bold and liberating move and the first step in finally getting out of this protracted economic depression. And yes, he should use the D-word, whatever the Republicans and the so-called “fact-checkers” say about it in that campaign. And he should also begin the campaign by explaining to the public the issuance and deposit of the first $60 T coin in a high profile TV address, this way (the second coin just stays at the Mint for safekeeping. Its existence to be kept secret). Here’s the speech.

My Fellow Americans:

1) Until now the Treasury has been borrowing the money the Government created back from the private sector, in order to cover our deficit spending, so the national debt has been steadily growing.

2) That’s silly! According to the Constitution, this Government, of the people, by the people, and for the people, is the ultimate source of all US money. So why should we ever borrow US money back and pay interest on it, since we can create it any time by the authority of the Constitution and Congress?

3) Congress has also imposed a debt ceiling, so, if and when we reach it, we can’t borrow back our own money without Congressional approval, anyway, and lately Congress has been using the need to raise the debt ceiling as an excuse to extort cuts in safety net and discretionary programs that the majority of Americans oppose.

4) So, on my order, and in accordance with legislation passed by Congress in 1996, and with the US Code, the US Mint has issued $60 Trillion using a single 1 oz. platinum coin, and deposited it at the NY Fed. It’s legal tender, so the Fed credited the Mint’s Public Enterprise Fund (PEF) account with $60 Trillion in USD credits using its unlimited authority from Congress to create US Dollars.

5) This is not inflationary because the Fed will put our coin into its vault, and keep it there permanently out of circulation, and the Treasury will use the $60 T in USD credits only to pay back debt and to spend what Congress has already approved, which is only a small fraction of these credits and far from the amount needed to cause inflation.

6) My action ends any possibility of a debt ceiling crisis in February or March, because we have no further need to borrow our own money back in the markets, and that’s why we don’t need the tea party or other Republicans, or even my fellow Democrats to agree to raise the debt ceiling any more.

7) Now the Treasury, has plenty of money, much more than we need, in fact, to pay for all appropriations Congress has already approved for 2013, and may approve in March, including all deficit spending and, again, we won’t have to borrow our own money back, either to repay debts or to implement future deficit spending.

8) So we will pay all Government debts which will come due in 2012 and 2013. Treasury securities and all other debts included. We will also pay back all debts held by other agencies of Government and the Federal Reserve. When we do this we will lower the national debt by about $12 T, reducing the “debt burden” by about 75% by the end of 2013, and creating an actual Social Security trust fund with 2.7 T in cash reserves in it; and again, to do this we don’t have to borrow our own money back, and we will also reduce our interest costs on the outstanding national debt all through the remainder of 2012, continuing through 2013, 2014, and beyond until it is all paid off.

9) None of the $60 T in new credits created by our actions is “money” in the private sector economy until the Treasury spends it. For now it is just capability to spend awaiting the appropriations of Congress to mandate deficit spending, should it need to compensate for the reduction in demand, probably close to 10% of GDP right now, caused by your own desire to save (which we want to do our best to facilitate), and your desire to import goods from foreign nations.

10) We have created $60 Trillion in new credits even though we probably needed less than that to cover anticipated deficit spending and debt repayment until 2027. The reason for this, is that I wanted to have enough capability created in the Treasury account, so that the national debt could be completely paid off (except for a small amount in very long-term Treasury debt still not mature by 2027), and all projected Federal deficits covered over the next 15 years, even extraordinary deficit spending needed to be performed without further borrowing over this period.

11) Of course, we can always make new coins if our projections about future deficits turn out to be wrong; but I thought it would be best to ensure that all $16 T plus of the “debt burden” can be completely eliminated from our political concerns; and also to provide enough funds in our spending account at the Fed, so that it would be very clear to Congress and all newly elected Representatives and Senators, that even though they, as required by the Constitution, continue to control the purse strings, the national purse is very, very full, and that we would be able to cover from the Treasury Account whatever deficit spending for the public purpose, including for full employment, Medicare for All, infrastructure, education, and other things, that Congress, in its wisdom, chooses to appropriate now, before the next election, and for some elections to come.

Good night, my fellow Americans! Rest well knowing that our beloved country won’t be defaulting on any of its debts when the debt ceiling is reached in February or March, and that I’ve prevented this without going over the legal debt ceiling or borrowing any more, by providing money for spending mandated appropriations, in compliance with the laws authorizing coin seigniorage, while supporting the Constitution’s prohibition against our Government ever defaulting on its debts. I hope that in the future everyone will obey the 14th Amendment’s prohibition against questioning the validity of Federal Government debts, and think twice before they indulge themselves in loose talk about the possibility of the Federal Government defaulting on its obligations.

America will always pay its debts in US Dollars according to the terms of the contracts it has concluded, and in line with the pension payments and other obligations that it owes. Neither you, nor the rest of the world need ever doubt that again! Nor need you ever think that our Government is running out of money for the things we must do. We can never run short of money unless Congress refuses voluntarily, to use its unlimited constitutional authority to make more of it. But as long as it delegates to me the authority to create high value bullion and proof platinum coins to cover our needs, you can be sure that running out of US money will never happen!

(Cross-posted from Correntewire.com.

Ending Austerity: Getting Free of Debt Subject To the Limit

7:31 pm in Uncategorized by letsgetitdone

It’s hard to listen to the doomsday rhetoric of Austerians like Paul Ryan and intermittently the less hysterical, but equally mythical narratives of the President when he talks about deficit/debt reduction, when you know better; when you know that both are talking about a bogeyman that doesn’t exist. Here’s Ryan, the Republican wunderkind:

“We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.”

”The next generation will inherit a stagnant economy and a diminished country.”

Why? Because the burden of public debt payback will too heavy for the next generation to bear. This is ridiculous, of course, because we can always roll over previous debt and pay interest on it as it comes due. In fact, during the past 11 years as Ben Strubel shows, we’ve rolled over $437 Trillions in debt. And as Mike Norman says, we’ve rolled over $32 Trillions thus far in Fiscal 2012 alone.

We’ll always be able to roll over our public debt if that’s what we choose to do because a debt instrument is the functional equivalent of a savings account, and frequently those who hold USD including foreign nations have the effective choice of keeping their USD in a reserve account or buying a debt instrument. They’d rather buy the debt instruments because they earn interest. However, low the rate of interest is, it’s better than the rate they’ll get if they keep their USD in their reserve account, unless the Fed decides to pay Interest-On-Reserves (IOR).

Can our national debt increase indefinitely? The short answer is: yes it can. The reason is that a Government like the United States with a fiat non-convertible currency, a floating exchange rate, and no debts in any other nation”s currency, has no solvency risk because it can always create money to pay its obligations. Its debt instruments therefore are nearly risk-free. They’re a safe harbor for investors who’d rather earn a return on the USD they hold, then content themselves with keeping it in a reserve account, that typically earns no interest.

The real problem with the debt subject to the limit is political

Even though there’s no real fiscal sustainability problem with the public debt, good luck trying to persuade the public that there is none, by using an argument like the one I just offered. The view that the Federal Government is like a giant household has been drummed into people for years. Also, everyone knows that local and State governments, as well as even very large corporations have real debt constraints (so long as the Government doesn’t bail them out). So, to persuade people that the Federal Government is different than other institutions isn’t easy, especially when the economic mainstream still contends that the Government has fiscal sustainability problems.

Proponents of Modern Monetary Theory (MMT) like myself often point out that Congress can always allow deficit spending without issuing debt instruments if it wants to, and has always had that power. Since it doesn’t do that it follows that the very existence of the “national debt” is Congress’s fault in the sense that the Government has issued debt instruments to close the gap between spending and tax revenues only because of the voluntary constraints Congress has placed on the Executive Branch.

This argument is also correct. But the prescription that the problem should be solved by getting Congress to get rid of these constraints and allow “pure” deficit spending with no debt issuance requires convincing Congress to do this. In the near term that’s not a practical prescription. Republicans and most Democrats have a vested interest in not recognizing that the debt is Congress’s fault, because they want to claim the mantle of “fiscal responsibility” by advocating for balanced budgets or long-term debt reduction, or reduced spending on the programs they don’t like.

So, neither Party will support “pure” deficit spending without a radical change in political understanding of what is possible for the Government brought about by a demonstration,within the limits of the current legal structure, that we can get free of the public debt subject to the limit any time the President wants to, without a by-your-leave from Congress.

The easiest way to get free of debt subject to the limit

The easiest way under current law to get to the point where there are no debt instruments outstanding is to persuade The President, or his successor, to use Proof Platinum Coin Seigniorage (PPCS), provided for under existing law, to generate the revenue needed to pay off the debt. Any other course to remove current constraints on “pure” deficit spending, will need Congress’s approval, which probably means it will also require overcoming the filibuster. The filibuster can be overcome for certain things, but not for major changes like the moving the Fed to the Treasury, or explicitly allowing “pure” deficit spending when it appropriates. In fact, to enact such a major change, it may be easier to get rid of the filibuster itself, since that requires only 50 + 1 votes, on the way to getting the major change.

So, from a political point of view, it is much easier to do PPCS for awhile than to get other alternatives done to overcome the “political debt problem.” Also, in effect, PPCS would subordinate the Fed to the Treasury anyway, since allowing the gap between tax revenues and spending to be closed through seigniorage would dictate the Fed’s actions in using IOR to hit its target interest rates.

In this post, I proposed minting a $30 Trillion proof platinum coin to accomplish getting rid of debt instruments and filling the public purse sufficiently to change the fiscal background so no one could use the argument that we don’t have the funds to spend on x, or y, or z, if these fulfilled aspects of public purpose. I also argued that minting that coin wouldn’t be inflationary in itself. Scott Fullwiler amplified that argument very thoroughly in a later post.

Later, I changed my proposal to minting a $60 T coin to increase the time horizon we would have to change public understanding, bring the Fed inside Treasury, and end the charade that the Government can’t create as much money as it needs to solve problems. That was done in three posts here, here, and here. There were also other posts in the same time frame using the $60 T assumption.

That level of PPCS hasn’t been met with great enthusiasm from my MMT compatriots. I suspect it’s because most think that the $30 T and $60 T proposals makes us sound crazy. Well, maybe it does, but that part of it is about messaging, and I think an eloquent President could sell it as a stop gap to get us out of our self-imposed fiscal constraints until Congress sees the wisdom of moving the Fed inside Treasury. The President could begin selling the $60 T coin with a speech like the one envisioned here.

Many people would be heartened and persuaded by a speech like that; but the President involved would certainly get charged with insanity for using PPCS in the way I’ve proposed. Rush Limbaugh, Laura Ingraham, and much of the mainstream press would probably join them along with other organs echoing the outrage of Peter G. Peterson’s deficit hawk/”fiscal responsibility” minions. But I think most of the firestorm would be ended within a week, if the President retires all the Intra-governmental debt, including debt held by the Fed within that time.

A news conference held immediately after that could announce that the debt subject to the limit was reduced by 40% in a week. Then at the end of every quarter the President could announce further reductions. The posts linked to above by Ben Strubel and Mike Norman suggest that over 4 quarters the President could report elimination of nearly all the debt subject to the limit other than a relatively small amount exceeding one year in duration. I haven’t tried to locate the precise number involved, but say it’s $2T. Then after a year, the President would be able to report that most (about 87%) of the public debt was gone, and he could also provide a schedule for fully paying the rest of it off, without either cutting spending or raising taxes.

If Scott Fullwiler and I are right and that no inflation would result from using PPCS, then no one would call he/she crazy because they used PPCS after that year of payback. It will have been demonstrated that the debt subject to the limit is a faux problem that can always be solved at will, and that the Government’s capacity to deficit spend with no solvency concerns is unlimited.

Deficit hawkism justified by solvency fears would be dead by demonstration, and a new era of deficit hawkism justified by a new round of inflation hysteria would dawn. We would be swamped by Weimar and Zimbabwe cautionary, Calvinist fairy stories told by the defenders of the 1%. This, however, is an improvement over their present insolvency fairy tales, because fiscal policy could be guided by actual, observable measures of impact, rather than by indicators that have only a tenuous connection to inflation or hyper-inflation at best.

Conclusion

So, summing up. I think progressives, including MMT economists, ought to support use of massive PPCS by the Executive Branch to pay off the debt, and change the political situation. We must fight to persuade the White House.

We can say that “the perfect” policy to get rid of the debt is to change the law and bring the Fed under the Treasury; but failing that, a “good” policy is to end any talk of fiscal solvency problems caused by the faux debt subject to the limit, by using massive PPCS. Since the President knows that “the perfect is the enemy of the good,” perhaps he’ll appreciate our practicality in being willing to accept PPCS in place of “the perfect.”

But regardless of whether he does so or not, at least we will be making the clear point to the White House and to everyone, that any “debt” problem we have from then on, will be, and for that matter is now, due only to the President’s unwillingness to use his legal powers to solve it. So, if everyone is as concerned about the debt, as they purport to be — concerned enough that they prioritize it above the social safety net for the poor, the middle class, working people who have lost their jobs and homes due to speculation by our feckless and fraud-committing financiers, the elderly, and the ill, and also prioritize it ahead of education for the young, reconstruction of the energy and infrastructure foundations of this country, and growing climate-change crisis, then why don’t they direct their concerns and place their blame where they both belong — namely at a President who will not use the powers Congress has given him to get rid of that public debt that is evidently so noxious to them? And, in the process, to take this silly faux issue, that has harmed so many people for so long, off the political table forever.

(Cross-posted from Correntewire.com)

Bernie: YOU Stop Caving to Peterson/Obama/#supercommittee

11:42 pm in Uncategorized by letsgetitdone

Dear Bernie,

Today, you told the “Democrats stop caving in . . . ” to the interests of corporations, the tea party, wealthy individuals, and the Republicans in Congress. The only problem with your fiery statement is that you began it by “caving in” to them yourself. You did this by immediately legitimizing their frame of reference by saying:

“Here is something we all can agree on: Federal deficits are a serious problem.”

I’m sorry Bernie, we can’t all agree on that, because it’s just not true, and it’s what the Republicans, the Blue Dogs, most Democrats and the Administration are all using to try to bully you and us into agreeing to spending cuts in key discretionary programs and programs like Social Security and Medicare, and also into not moving for more spending on jobs, better entitlement programs, including Medicare for All, and better discretionary programs we need to solve our many national problems.

The idea that Federal deficit spending is a serious problem is the idea, that along with the belief that the Federal debt is getting to be some kind of irresolvable problem, is in back of the whole anti-deficit/debt thrust of the deficit terrorists like Pete Peterson, David Walker, Alice Rivlin, and all the others in Washington including the President. In turn, this thrust has led to the Bowles-Simpson Catfood Commission, and the current so-called supercommittee that you’ve been fighting so hard ‘lo these past months, and the constant drum beat that “There Is No Alternative” (TINA) to deficit cutting.

So, when are you going to learn that the only way for you and us to end this fight and to win it, is to deny their basic premises and particularly their foundational idea that the United States of America, the issuer of its own non-convertible floating fiat currency, with no external debt payable in anyone else’s currency, and the ultimate source of all US Dollars existing in the world, can run out of the money needed to continue to deficit spend, and to pay all its bills including the principal and interest on all its debts, as well as all Congressional appropriations you and your colleagues may choose to legislate?

You say that the deficit is a serious problem. But I think it’s not a real problem at all for at least three reasons that refute TINA.

– First, because nothing bad needs to happen if we continue to run deficits, as long as we don’t do so after our economy is operating at full capacity. But we are very far from that state right now with between 25 – 30 million people wanting full time employment and not being able to get it. So, we can’t have demand-pull inflation now. It’s impossible.

– Second, because it’s the Congress that is constraining the Government from generating money for its debt repayment, or appropriated deficit spending using means other than taxing or borrowing, because Congress prohibits the Treasury from freely issuing Treasury Notes and also requires that it issue debt before it deficit spends, while at the same time imposing debt ceilings that interfere with borrowing to spend appropriations Congress has already made. So, there is no real problem because the constraints were made by Congress and can be lifted by it in a single afternoon, if it wants to.

There Is An Alternative (TIAA). And it is for Congress to stop requiring the Treasury to issue debt when it deficit spends, and to allow it instead to “mark up” its own accounts at the Fed when it needs to spend an already legislated Congressional appropriation, or to repay past debt and interest.

You should be making the truth of TIAA clear to the American people, Bernie, so that everyone knows that any shortage of money to spend is Congress’s own fault, and that there is no debt/deficit problem in the sense of an inability to pay, or a need for China, Japan, or the bankers to lend the Government back the money the Government created in the first place, or a need to cut spending, or a need to raise taxes on anyone, or both, to avoid impending or future solvency.

But instead you’re reinforcing their message that there is a serious deficit problem. Now that’s what I call “loser liberalism,” Bernie.

– And Third, there is no problem because even under current law, with its constraints on the Treasury’s ability to spend what’s required to repay debt or spend Congressional appropriations, it has been legal since 1996 for the Executive Branch to issue 1 oz. proof platinum coins having arbitrary face value in the amount of many Trillions of Dollars, deposit those coins at the Fed, and force the Fed to use its money-creating authority to credit Mint and Treasury Accounts with electronic credits equal to the value of the coin. The money placed in Treasury’s accounts as a result of this action need not be spent. In fact, if the Executive minted a $60 T coin, then it could not all be spent because the authority for spending by the Treasury would not extend further than repayment of debt subject to the ceiling as it falls due, and payment implementing Congressional appropriations approved up to now.

So, even if such a coin were issued, spending by the end of the year would be limited to repayment of all intra-governmental debt, including all debt held by the Fed itself, and the Federal spending appropriated by Congress for the remainder of this calendar year. Most of the $60 Trillion would still remain unspent to be used for future debt repayment as the securities fall due, and payment for future Congressional appropriations that would not be covered by tax revenues.

As long as those appropriations don’t outrun tax revenues more than is necessary to enable a full employment, full capacity utilization economy, no one has to worry about demand-pull inflation resulting from excessive Government spending. It won’t happen. And if there is any inflation from other causes, which is possible, and even probable, if we don’t prevent excessive commodity speculation through appropriate laws and their faithful enforcement, any cost-push inflation, won’t have anything to do with Government spending.

You can find a more detailed explanation of this coin seigniorage idea and its implications here, here, here, and here. Without going into detail in this open letter, I’ll just say that if the President uses coin seigniorage in the way I’ve outlined, he can fill the public purse with such a large volume of USD electronic credits that no one will be able to say, ever again, that the US has a deficit/debt problem because it is running out of money. And, additionally, in a very few years, the Treasury’s payment of the Government’s debts as they fall due, without any further debt issuance, to spend Congressional appropriations not covered by tax revenues or other sales, will result in most of the debt subject to the ceiling, except for long-term debt, being paid. There will be very low levels of debt subject to the ceiling and eventually no debt of this kind at all.

So, to summarize, it is not true that “. . . Federal deficits are a serious problem.” And it is not true that we have to do anything to reduce deficits defined as a gap between Federal spending and Federal tax revenues. The whole exercise in deficit reduction that the president and the other deficit terrorists have put this country through has been an immensely wasteful distraction.

As you say in your HuffPo piece:

“This is a pivotal moment in American history. The rich and large corporations are doing phenomenally well while the middle class is collapsing and poverty is increasing. Now is the time to answer the question that the Woody Guthrie song poignantly asked, “Which side are you on?” The Democrats must answer boldly that they are on the side of working families and the middle class and that they will fight to protect their interests.”

And you, Bernie, must also answer boldly with the truth. People who are on the side of working families and the middle class, like yourself, cannot continue to say that “we can all agree that there is a serious deficit problem”, because that has been the continuing most important element in the case the deficit terrorists are making.

To defend our ground, and the 99%, we need to deny and defeat that false framing. We cannot reinforce it! We need an alternative framing.

And that framing is, the Federal Government needs no money from anyone to pay its debts and to spend what Congress has appropriated. We are a fully sovereign nation, and as long at we retain that full sovereignty, including its fiscal aspects, the Government can spend/create any money it needs in accordance with the authority given to it by the Constitution of the United States. It is up to the Congress and to the Executive to use that authority as necessary to create and maintain full employment AND price stability, as well as all other aspects of the Public Purpose, as that purpose is defined and specified by the people of the United States of America.

Best,

Joseph M. Firestone, Ph.D.
(Letsgetitdone)