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Peterson Thinks We Need Austerity While He Lives It Up!

9:46 am in Uncategorized by letsgetitdone

Pete Peterson’s long-term fiscal problem is a figment of his lack of imagination

The Peterson Foundation reacted to the President’s budget document with a report repeating its usual whining about the debt problem, and the need to cut entitlements. Here are quotations from the report and my explanations of why they are ridiculous deficit/debt terrorist nonsense.

While today’s deficits are much lower than those during the financial crisis and recession, over the next ten years debt will remain at historically high levels under the policies outlined in the President’s budget. Over the long term, our debt is on a rising and unsustainable path that harms our economy and threatens our future standard of living.

First, Government deficits that don’t exceed the sum of private sector savings and trade deficits are not bad for the private economy. They are good because they contribute directly to private sector savings and the aggregate demand and subsequent economic growth it can create. It would be nicer for all of us if Mr. Peterson learned that lesson before his propaganda turns the US into a third world banana republic; unless, of course, that’s what he’s about. Read the rest of this entry →

How to Restore the Good Name of Government

2:28 pm in Uncategorized by letsgetitdone

There are four very important things the president can do before the elections of 2014 that would help to restore some faith in Government and, as a by-product, at least tentative trust in the possibility that renewed Government deficit spending may help people.

Why is it that Washington village “progressives,” and their associates in other parts of the country who are nevertheless part of the Washington village culture, often ask useful questions, but, almost always deliver, underwhelming answers? Here’s an example from Richard Eskow, probably the best writer at Campaign for the American Future.

How do we restore the good name of government spending, which is especially important during periods of high unemployment and slow growth like these? First, by supporting those politicians who are unafraid to make the case. Second, by demanding that the reluctant ones take a bolder stand – without mixing their messages between spending and premature austerity. Third, by rejecting the insanity that today’s Republican Party represents. Some in the GOP are even opposing infrastructure spending – as America’s bridges, schools, highways and dams decay around us.

Underwhelming, right? Why? First, because there aren’t too many politicians who are unafraid to make the case. Second, because people who are reluctant aren’t likely to respond to only “demands” from people who fiercely desire more government spending. Third, because merely rejecting Republican insanity is very unlikely to cut it, since that is what Democrats have been doing and it seems to be having little or no effect. And fourth, because the only way to restore faith in Government spending is to take actions that have consequences that are highly visible and unambiguously good for the vast majority of people. In other words, those who want to restore faith in Government spending have to get the Government to take actions delivering things for people that they see as important. So, how can this be done?

At this juncture, little can be done that involves the Congress because Republicans and Democratic corporatists won’t let it happen. They won’t legislate anything useful before the election.

Nor will they legislate anything useful after it unless 1) Democrats get a majority in both Houses and 2) Democrats who constitute those majorities are willing to move away from corporatism and legislate in the interests of people. So, if something can be done in this area, it must be done by the President. There are four very important things he can do before the elections of 2014 that would help to restore some faith in Government and, as a by-product, at least tentative trust in the possibility that renewed Government deficit spending may help people.

1. The President can re-institute the rule of law in the area of national security and secrecy by ending mass surveillance of the US population immediately, ceasing all investigations and attempts at prosecutions of journalists who have been trying to tell the public about the overreach of our intelligence agencies, beginning investigations and prosecutions of intelligence operatives who have broken existing laws in gathering intelligence, ending current prosecutions of whistle blowers, and issuing pardons for those who already have been tried, convicted, and jailed.

2. The President can re-institute the rule of law in the area of FIRE sector control and mortgage frauds by beginning investigations and prosecutions of high level executives at too big to fail FIRE sector organizations who have committed fraud including those that caused the financial collapse of 2008, which, in turn, led to the Great Recession and the destruction of so much middle class wealth.

These first two initiatives are supremely important because they will deliver a very visible presidential message that the Government is re-instituting honest government and a single system of law, which, in turn, will give people some reason to believe that renewed spending by the Government will be carried out honestly for the benefit of people, and not for the benefit of FIRE, health care, energy and other elite corporations. Giving people this is an essential step in restoring faith in additional spending, since from their point of view, it looks like the financial power of Government has been used to save big corporations and Wall Street and see to it that they prosper, while leaving working people and home owners to twist slowly in the economic winds of “the long depression” (Eskow’s memorable phrase). How can they believe that renewed spending will help them if they believe that the Government promising good results from new spending is a corrupt government, in the pocket of the 1% or perhaps even the 0.001%?

3. The President can next do something that is very essential to developing widespread support for renewing spending, because it will make plain that the US Government has and always will have whatever amount of funds it will take to create full employment and to finally end the long depression. The President has to remove the perceived problem of the national debt from the consciousness of the public by paying off a large proportion of it WITHOUT running economy-destroying surpluses. There’s only one way that can be done by the President acting alone right now, in time to affect the campaign environment in the 2014 election by eliminating the debt as an issue backing continued austerity propaganda.

That way is to cause the US Mint to create and deposit a platinum coin with a face value high enough to repay the debt subject to the limit entirely as it falls due, and to cover deficit spending for a long period of time thereafter. If the President does that, and sees to it (as he has the power to do) that the Mint’s account, and ultimately the Treasury’s spending account are credited with reserves equal to the value of the seigniorage resulting from the Mint’s deposit at the Fed; and also, if he follows that up by immediately paying off a large percentage of the debt, then everyone will know that the seigniorage is being used to get rid of the debt quickly.

When people know this they will know two other things. One, that the Treasury is easily paying off the debt, and two, that it has and always can easily create whatever funds it needs to follow through on its promises to end the long depression without either cutting spending or raising taxes. This will be a revelation to people which the President and the Democratic Party must drive home.

4. The White House and the Democratic Party must then run a campaign advocating a list of programs people will immediately view as likely to solve their economic problems. These must promise full employment recovery within a year using full payroll tax cuts and a Job Guarantee program at a living wage with good fringe benefits, strengthening social security and other trust fund programs by guaranteeing their annual spending regardless of the size of their trust fund balances, and by greatly increasing the size of safety net benefits and the protections they afford in case of inflation, truly universal and comprehensive health care using enhanced Medicare for All, revenue sharing for states on a proportional basis by population, fixing US infrastructure over 5 years, fixing the Housing crisis with various specific measures redressing the injustices done to homeowners by the big banks since 2007, fixing the student loan crisis with a “debt jubilee” and a grant program covering post-secondary education, and, lastly, dealing with environmental, climate change, and sustainability issues with a massive 5 year transition away from fossils fuels and nuclear and to renewable energy.

Democrats must then meet the cynicism and ridicule greeting these campaign promises by guaranteeing that if people give them a victory, then they will get rid of the Senate filibuster and other impediments to rapid action, and will legislate their program within the two year period of the next Congress without fail. These guarantees must be backed with a further promise not to run for re-election if they break any of their promises. Only then will some of the cynicism greeting their promises be dispelled.

Finally, these Democratic promises will surely be met with a campaign emphasizing the bogeyman of hyperinflation. Democratic promises will be estimated in a primitive way totaling up what will they cost over the two year period. The assumption will be made that they won’t be countered by automatic stabilizers producing increasing fiscal drag as the US approaches full recovery.

Democrats will have to respond with their own projections estimating that drag. It will come from gradual and automatic re-imposition of payroll tax cuts calibrated to kick in gradually as unemployment decreases, and gradual shrinking in Government spending on the Job Guarantee (JG) program as the private sector responds to increased demand by hiring people from the JG rolls.

In addition, it will come from increasing private sector savings and increasing trade deficits as recovery moves forward. It will also come from the White House working with Congress to phase in some of the programs I’ve mentioned gradually and in response to increasing fiscal drag.

The bottom line is that if the Democrats are successful in winning the Congress in 2014, and in legislating these programs, then faith in Government will be restored. But, there will be a fly in the ointment, as there is always is in life. The debates over fiscal policy will shift to debates about the likelihood of inflation, and managing the economy to avoid inflation at full employment will become a prime concern. We will have traded increasing government illegitimacy, chronic unemployment, stagnation, and “long depression” problems for renewed faith in government, full employment, prosperity, and inflation concerns.

That’s a great trade-off for all of us, I think. And I will take it anytime over the current neoliberal evolution toward a feudal/fascistic order.

(Cross-posted from New Economic Perspectives.)

Photo by l’ennui d’ennui, used under Creative Commons license

What That Letter Should Have Said

9:54 pm in Uncategorized by letsgetitdone

On Valentine’s Day, Senator Bernie Sanders sent a letter to the President, authored by himself and signed by 15 other Senators, all Democrats. The letter was a response to the rumors that the President intends to include his Chained CPI proposal to cut Social Security benefits in the budget he will soon send to Congress. It summarized:

Mr. President: These are tough times for our country. With the middle class struggling and more people living in poverty than ever before, we urge you not to propose cuts in your budget to Social Security, Medicare, and Medicaid benefits which would make life even more difficult for some of the most vulnerable people in America.

We look forward to working with you in support of the needs of the elderly, the children, the sick and the poor – and all working Americans.

The letter also stated a number of the usual talking points made in arguments against cuts to Social Security. In addition, it also contained praise for the President for his actions in improving the economy, creating jobs, and reducing the deficit, and it mentioned some specifics, including reduction of the Federal deficit to less that half of the $1.4 Trillion deficit he began with. The letter also asserted the need to do much more, especially in the areas of the economy, reducing unemployment and wealth and income inequality, and reducing the deficit “. . . in a fair way.”

It is a positive development that a group of Senators decided to preempt the President’s budget offering stating their disagreement with any proposed cuts to SS, Medicare, and Medicaid, but I think there were a number of ways in which the letter could have been done more effectively. First, It would be great if progressives urging the President not to cut the safety net would stop reinforcing the frame that lower deficits are good and that the President is due praise for cutting the deficit so sharply (CBP projects a 3.0% of GDP deficit this fiscal year). It is not good that he has cut the deficit so much, because in doing so, he has subtracted from Federal Government additions of Net Financial Assets (NFAs) to the economy. These contributions are projected to be so low this year that they will only compensate for the demand leakage due to the trade deficit, leaving no additional NFAs for net aggregate private sector savings.

Given the presence of unequal economic power to collect financial assets in the hands of economic elites, the implication of this is that the lower deficits will only further exacerbate inequality in the United States as well as contribute to continued high and long-term unemployment and stagnation (low growth) in the economy. In short, the austerians, including the President and other Democrats and Republicans who have been insisting on lower deficits are responsible fr the stagnation we see all around us.

Second, the letter would also have been more effective, if it had more than 15 signatures on it. Many Democratic Senators are running for re-election this year. Do they really want to be running as one of the faces of a party whose head is advocating for cuts to Social Security? Is this really good for Kay Hagan, Jeanne Shaheen, Mary Landrieu, Mark Pryor, Mark Warner, Cory Booker, Tom Udall, Mark Udall, Chris Coons, and John Walsh? So why haven’t they signed the letter? Do they really expect to re-elected if they decide to support a budget that contains chained CPI, and, even if they don’t support it, will they benefit if their party leader is proposing chained CPI? So why wasn’t Bernie Sanders able to get these additional signatures from Democrats who face challenges and are running this year?

And third, this letter would have been much, much stronger if the Senators who signed it said to the President directly that they know that there is no short or long-term debt problem and hence no further need to worry about cutting the deficit to achieve fiscal sustainability or ficsal responsibility. And that they also know that any debts that the Treasury has incurred in the past, or deficits that it incurs in the future, can be either paid off as they fall due, or covered completely by revenues from High Value Platinum Coin Seigniorage (HVPCS) used under the authority provided by legislation on denominations, specifications, and design of coins, passed in 1996. (Full details and issues surrounding HVPCS are given in my e-book.) They also should have added that since there is never any need based on the idea that “we’re running out of money,” to cut any safety net programs, that they want the President to know that everyone signing the letter is committed to voting to kill any budget offered by the President including the chained CPI, or any other provision cutting safety net programs.

A letter enhanced in the three ways I’ve just outlined would have been a damn sight more effective in warning Obama off the chained CPI, than the one Bernie Sanders and the other 15 Senators sent. And it also would have been much more effective in getting those Democratic Senators who signed it and are running, elected in November.

Cross-posted from New Economic Perspectives.)

Dear Dr. Krugman: Please Let Me Explain

8:35 pm in Uncategorized by letsgetitdone

Paul Krugman looking downwards

Krugman misses his deficit hawk friends.

Paul Krugman can’t explain why the deficit issue has suddenly dropped off the agenda. He says:

. . . quite suddenly the whole thing has dropped off the agenda.

You could say that this reflects the dwindling of the deficit — but that’s old news; anyone doing the math saw this coming quite a while ago. Or you could mention the failure of the often-predicted financial crisis to arrive — but after so many years of being wrong, why should a few months more have caused the deficit scolds to disappear in a puff of smoke?

Why indeed are they so quiet? Could it be because the deficit hawks have succeeded in getting the short-term result they want, which is a likely deficit too small to sustain the private savings and import desires of most Americans, and also because the political climate is such right now that they cannot make progress on their longer term entitlement-cutting program until after the coming elections have resolved the issue of whether there will be strong resistance to such a campaign if they renew it? Let’s look at the budget outlook first.

Here’s CBO projecting deficits of 3.0% of GDP this fiscal year, followed by 2.6%, 2.8%, and 2.9% for fiscals 2015, 2016, and 2017. Those deficits are mostly smaller than Warren Buffett’s and the Eurozone’s favorite deficit target of 3.0%. They are the same too small deficit targets that have prevented the Eurozone’s PIIGS from responding effectively to the crash of 2008, and the prolonged depression and astronomical unemployment rates which have engulfed them since. When one considers that CBO’s projections are usually too conservative when it comes to projected deficits, so that the reality of these is likely to be smaller, as it has been regularly, for the past few years, then it’s even more apparent that Peter G. Peterson and his other austerian friends have gotten where they want to go for the time being.

Nor are there any other major influences in Washington, DC advocating higher deficits. Even “progressive” groups and politicians always talk about “pay fors” and offer 10 year deficit reduction plans that envision deficits averaging far less than the 3% target.

So, the deficit hawks have already gotten to their short – term goal. Their long – term goal of hollowing out the social safety net has met with increasing resistance over the past four years. And the resistance is strong enough that the Democrats have no stomach for bipartisan compromises cutting Medicare or Social Security for the present.

The deficit/debt hawks now need a breather. They needed to go into wait-and-see mode to see what the elections of 2014 produce.

If they produce the right mix of tea partiers, and Republican and Democratic debt hawks. They may be able to produce a new “Grand Bargain” early in 2015 before 2016 election pressures become intense, and the influence of Hillary Clinton’s candidacy on Democrats in Congress becomes too great. I say this not because I think that Clinton will necessarily oppose any such bargain in the long term; but because such a bargain would be risky for her candidacy and the Democrats in the run-up to the elections of 2016.

So, from my viewpoint I don’t think the time is propitious for the deficit/debt hawk forces to keep pressuring for entitlement reforms and a long-term solution to their favorite, and non-existent, financial problem of excessive public debts in fiat sovereign nations like the United States. And I think they know that.

Instead, it is a good time for them to regroup and plan their next attack on entitlements. That will come under cover of the Republicans’ next debt ceiling attack, which is a good possibility for March of 2015.

So, I see the Peterson forces beginning to beat the drums again towards the end of the year and build up the intensity of their appeals from January to March. I don’t see a strong move to cut entitlement spending in the lame duck session, since there will be no debt ceiling cover then to generate leverage heavy enough to get Democrats to accept part of the blame for cutting entitlements.

Cross-posted from New Economic Perspectives.

Read the rest of this entry →

Things Will Get Worse Before They’ll Get Better

8:29 pm in Uncategorized by letsgetitdone

House leaders have agreed on a compromise continuing spending resolution at the same level as before from October 2012 through March 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 August 2, Daily Treasury Statement, there’s $528,508,000,000 of deficit spending left until the debt ceiling is reached. In addition, there’s an additional 58,993,000,000 available in reserves, for a grand total of $584,501,000,000 available until the debt ceiling is reached. That’s an average of $73,062,625,000 deficit spending per month for the next 8 months, ending March 31, 2013.

For the past 10 months, average deficit spending was at $114,802,300,000 Billion per month, and that amount was not enough stimulus for a full recovery. So, the likely 36% 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, provided private sector net spending doesn’t increase to compensate for less Government spending. What would have to happen for private sector spending to increase?

That’s an easy one to answer. The government deficit for the past 12 months, in rough terms, has been about 8% of GDP. The planned spending would be about 5.5% of expected GDP. If the Government sticks to its deficit spending targets, then the private sector will have to save less and import less, to avoid demand leakage which would place greater fiscal drag on the economy. If imports come in at 3% of GDP, then private sector savings will have to decrease to 2.5% or less of GDP if the economy is to expand faster than it is now, and to create lower unemployment.

This conclusion isn’t set in stone because there are distributional effects to consider, but it’s also true that private sector attempts to continue to save say 6% of GDP and to import 4% of GDP will cause slower GDP growth, higher unemployment, and more rapid government spending than planned in the shorter run, bringing on the debt ceiling problem sooner than expected, and, in the absence of Congressional, or Executive, action allowing more deficit spending, forcing the Government into surplus, and the economy into even more rapid decline prior to March 31, 2013 due to fiscal drag.

In short, the recent jobs report notwithstanding, looking at the economy from the viewpoint of the sectoral financial balances model, and taking into account the likely spending plans for the next 8 months, the economy looks bleak even if we assume that the Eurozone will hang in there, and avoid a financial crash, forcing us to face, once again, the question of whether the big banks should be bailed out again, or whether this time, they should just be taken into resolution and the TBTF ended.

I don’t believe it makes much difference to this prediction of how the economy will go whether President Obama or Romney is elected, as long is there isn’t a big change in the Congress, or a big change in the stated views and behavior of whichever candidate is elected; both of which are very unlikely as far as we can see at this point. It’s as if we have entered the 1930s with only different versions of Herbert Hoover, without half the integrity and good will old Herbert had, to lead us.

We are nearly four years into the crash now, and real unemployment rates are approaching depression levels. Working Americans could well lose a decade, as Paul Krugman has been warning, before this is over. And if Americans don’t rouse themselves to either take over or destroy both these sorry excuses for political parties over the next four years or so, we could be looking at a longer period of blight than that.

(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)

Would Congress and the President Try to Cut Federal Spending If . . .?

8:40 pm in Uncategorized by letsgetitdone

This one is a message intended for all progressive organizations, especially those who have worked so hard to derail the drive for cuts in Social Security, Medicare, and Medicaid, or are working hard to protect other valuable discretionary programs.

There’s another hostage-taking coming in the next three months over the 2012 Budget legislation. You know it! I know it! Everyone knows it!

So ask yourselves these questions:

1. Would Congress and the President be trying to cut Federal spending if the Treasury General Account (TGA) at the Fed had more than $50 Trillion in it?

2. Would Congress and the President be trying to cut Federal spending if the President has already paid off roughly $50% of the national debt?

3. Would Congress and the President be trying to cut Federal spending if the national debt was scheduled to be almost entirely paid off by September of 2014 and they knew that the Treasury had the money already to make the necessary payments?

4. Would Congress and the President be trying to cut Federal spending if they knew that the US could never become insolvent and never had to borrow back its own dollars?

5. Would Congress and the President be trying to cut Federal spending if they knew that all four of these conditions was true?

So what if I told you that by the time the hostage-taking is likely to happen all of these conditions can provide the background for budget negotiations, and whether they do or not depends on what the President, alone decides to do?

Then shouldn’t it be the highest priority of those who are opposed to austerity and cutting the social safety net to carry out a strong campaign to make the President take the few simple steps needed to create these conditions and head off the hostage-taking?

Here are the steps:

A. Mint a platinum coin with face value of $60 Trillion, deposit it in the U. S. Mint’s Public Enterprise Fund (PEF) Account at the Fed, then have Treasury “sweep” the difference between the cost of minting the coin and its face value into the TGA.

B. Immediately pay off the $6.2 trillion owed by the Federal Government to the Federal Reserve Bank, the various Government Agency Trust funds, among them Social Security and debts to other Government Agencies.

C. Pay off the non-Government sector debt, as it comes due using Proof Platinum Coin Seigniorage (PPCS) revenue when necessary. Since the estimated cost is about $300 Billion paid off per month; we can expect another $1 Trillion to be paid off by the end of the year leaving a national debt of about $7.1 Trillion, with a bit less than $53 Trillion still left in the TGA.

D. Pay for any 2011 spending not covered by taxes between now and the end of the year, estimated at about $600 Billion, using the credits in the TGA, rather than issuing debt.

The function of minting the high face value proof platinum coin, filling the Federal purse using PPCS, and beginning to pay off the national debt quickly, is to demonstrate dramatically that there is no US solvency problem, nor any debt and/or deficit reduction problem.

Issuing the coin and getting the Fed to issue $60 Trillion in credits to Treasury, will demonstrate exactly that, and blow any justification for austerity and spending cuts out of the water. The Republicans won’t be able to spin that; and without a plausible claim that austerity is necessary, the drive to take hostages and force austerity on America will evaporate. Within a few weeks we will have a new political discourse, and hostage-taking will no longer be part of it.

(Cross-posted from Correntewire.

End the Austerity War Against the People: Mint the Platinum Coin!

9:24 pm in Uncategorized by letsgetitdone

How can the President win a victory for the people in the coming hostage-taking over the budget? Here’s a scenario!

1. Mint a platinum coin with face value big enough to cover pay-off of the national debt, and the gap between tax revenues and Government spending for many years to come. For example, $60 Trillion in face value would generate enough electronic credits in the Treasury General Account (TGA) at the Fed to last for about 20 years or through 2030. Result: $60 Trillion in the TGA, none of it spent, so no possibility of inflation.

2. Immediately pay off the $6.2 trillion owed by the Federal Government to the Federal Reserve Bank, the various Government Agency Trust funds, among them Social Security and debts to other Government Agencies. Result: Reduction of the national debt from $14.3 Trillion to $8.1 Trillion, all of it owed to the non-Government sector. None of the $60T spent in such a way that the money goes into circulation; so no possible inflation.

3. Pay off the non-Government sector debt, as it comes due using Proof Platinum Coin Seigniorage (PPCS) revenue when necessary. Result: Since the estimated cost is about $300 Billion paid off per month; we can expect another $1 Trillion to be paid off by the end of the year leaving a national debt of about $7.1 Trillion, with a bit less than $53 Trillion still left in the TGA. The $1 Trillion in debt “swapped” for non-governments sector cash reserves is very unlikely to cause inflation, since the debt instruments are probably more inflationary.

4. Use PPCS to pay for any 2011 spending not covered by taxes between now and the end of the year, estimated at about $600 Billion. Result: $52 Trillion left in the TGA. And since the 2011 deficit spending hasn’t created full employment, no inflation will result from this action either.

5. Go into the negotiations on the budget with a position, saying

“there will be no spending cuts in this budget at all. In fact, I want a) a full payroll tax cut for employers and employees until full employment is reached; b) immediate lifting of the limit on number of weeks someone can get unemployment insurance; c) restoring food stamp program spending to its state before the recent cut; d) immediate revenue sharing for the States in the amount of $1,000 per person to enable State Governments to retain public service jobs; e) A Federal Job Guarantee program with a base wage of $8.00 per hour cost-of-living adjusted from the lowest cost of living SMSA in the nation upward, with full fringe benefits, and including Medicare enrollment for FJG workers; and f) an increase in SS payments by 50% effective immediately. Now, what is it you gentlemen want?”

Result: They will say that’s ridiculous, and threaten to shut down the Government. The President can reply by pointing out that he has solved the austerity/solvency/debt/deficit problem, and there’s no need to cut spending.

6. Make a major address to the American people telling them the situation and the history of Republican efforts to tank the economy, informing them of your proposal to head off the likely double-dip recession, end unemployment, and strengthen Social Security, point out that the Treasury General Account has $54 Trillion left in it, and that the national debt is being repaid at a rate of $200 – $300 Billion per month, will be 50% repaid by the end of 2011, and will be almost entirely repaid by 2014. So, there is no deficit, debt, or deficit reduction problem. There is plenty of money in the Federal till to do all the things you’ve proposed and provide jobs for all, and create plenty of sales to get business roaring.

Tell them the Republicans are standing in the way of jobs for everybody, and that they need to get on the phone to their representatives and demand that they make a deal with all the President’s proposals in it. Result: Congressmen and Senators will get all kinds of mail, phone calls and other communications supporting the proposals and telling them to end the sufferings of the American people, or else. That will be even more likely to happen if the economy is continuing to get worse. However, the Republicans will probably still reject the President’s proposals, call them profligate spending, and the tea party Reps. will probably threaten to shut the Government down, if their demands are not met.

7. The President can then call for a meeting with the leaders of both Houses to get the demands of the Republicans on the table, and see whether there can be a settlement. The Republicans will propose all kinds of harmful cuts in spending, no tax increases and will demand passage of the Bush Tax cuts on a permanent basis. Emboldened by the presence of $54 Trillion in the bank, the Democratic Leaders will demand passage of all of the President’s proposals; but they will probably no longer demand expiration of the Bush Tax cuts, because they will probably recognize that there is no longer any visible money problem.

The President can end the meeting by saying that the Republican position on cutting spending is untenable because he has proven that the US has no revenue problem, and that there is no reason for austerity. At the same time, he can suggest to the Democrats, if they called for letting the Bush tax cuts expire, that there is no economic justification for doing that, and that the only justification is one of fostering greater economic equality; an important issue, but perhaps not one that ought to block a deal with a Republican House on the budget. Then he can ask the leaders to get back to their caucuses and propose a compromise that is likely to pass both Houses.

Result: The President will have leverage to propose a compromise to the country. The Democratic leaders will have no problem getting the full support of their caucuses for the deal. The Republican leaders will have problems with their tea party people; but they can point out that the proposed compromise doesn’t violate Grover Norquist’s pledge, and also that it will be very hard to oppose a compromise that will definitely produce full employment for everyone who wants to work, and that carries with it no visible debt problem.

8. The President should, at that point, immediately outline a compromise proposal to the nation including all of his demands, and also one Republican demand, namely a continuation of the Bush tax cuts. He can emphasize that he has ended the deficit/debt problem with its need for austerity for good. He must again ask the country to tell their Senators and Representatives to support him in his new compromise which gives the Republicans what they’ve wanted badly, and also gives to the people the programs that will finally create the good jobs needed to end unemployment.

He can also ask them to fulfill his special request, which is to tell their Representatives and Senators that if they vote against his compromise, the voter will vote against them if they are primaried in 2012, and will even vote against them if the other major party runs an acceptable candidate who supports the President’s jobs proposals.

Result: the flood of messages coming into the Capitol will cause the Republicans to “cave” to the compromise proposed by the President. And the President will finally have stood up to the hostage-takers and arrived at a good deal for the people of the United States.

I can’t conclude this scenario without noting, that the successful outcome of the coming budget hostage-taking will not be possible without changing the background of any negotiation that will accompany it. Specifically, to be successful, and resist the hostage-takers, the President must change the situation to remove the most obvious justifications for cutting spending.

The function of minting the high face value platinum coin, filling the Federal purse using PPCS, and beginning to pay off the national debt quickly, is to demonstrate dramatically that there is no US solvency problem, or any debt and/or deficit reduction problem.

Issuing the coin and getting the Fed to issue $60 T in credits to Treasury, will demonstrate exactly that, and blow any justification for austerity and spending cuts out of the water. The Republicans won’t be able to spin that; and without a plausible claim that austerity is necessary, the drive to force austerity on America will evaporate. Within a few weeks we will have a new political discourse.

The main problem I see with this scenario is getting the President to use PPCS to shake up the austerian system, destroy its forward momentum, and bring forth a new progressive era. He has the power to do it; but he is so tied into his Hooverian austerity-mongering, that I don’t think he will use PPCS even though it could well mean the difference between victory or defeat in 2012 for him. He’d rather cling to his neoliberal world view than to learn and to change the terms of the debate and the political paradigm that he is so comfortable with.

That’s why I propose that we press for his resignation now! Before he comes up with any more horrible deals with the Republicans and the tea party. Face It! This man can no longer be our leader. His pragmatism is not the pragmatism of FDR and the great Democrats of the past. It is a corrupt short-run pragmatism. He does not deserve our support or our loyalty! What he needs to do is to heed Oliver Cromwell’s old admonition to the long parliament:

“You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!”

In other words, ask him to resign, immediately!

(Cross-posted from Correntewire.

Stephanie Kelton and the Catfood Commission: “I Know Which Scenario Benefits Me; Do You?”

9:01 am in Uncategorized by letsgetitdone

In a beautifully simple post that should crystallize everything for you, Professor Stephanie Kelton of the University of Missouri at Kansas crystallizes the logic of the Sectoral Financial Balance Model for President, Obama, the Catfood Commission, the deficit hawks and doves and you and me. She says:

In a ‘closed economy’ (one without foreign trade), the government’s budget position is, by accounting logic — the negative of the private sector’s (firms and households combined) position. Thus, a public sector DEFICIT is equal to the private sector’s SURPLUS. To the penny.

So, in a closed economy, a Federal Government budget deficit adds to private sector financial assets, while a Government surplus represents a leakage and subtracts financial assets from the private sector. Or more briefly, Government deficits make private individuals richer; Government surpluses make private individuals poorer.

Of course, we don’t have a closed economy, we have an open one. We have to consider the foreign trade sector too. So:

. . . like a government SURPLUS, a trade DEFICIT reduces the private sector SURPLUS, which creates an even bigger need for a public sector deficit.

Or, in other words, a trade deficit makes the private sector poorer in financial assets, while a trade surplus adds to private sector financial assets. Combining all three sectors and the current condition of the United States, Stephanie concludes:

As long as we (Americans) continue to run trade deficits, there are only two options: (1) the government runs deficits (and they must be at least as large as the trade deficit), or (2) the rest of us do. I know which scenario benefits me. Do you?

I think that most of us, including the President and all the other hawks either don’t, or are deliberately trying to make people poorer, or there wouldn’t be any Catfood Commission. Think about it. The Catfooders want to reduce or eliminate the deficit and one day even get to a surplus. And they want to do that by implementing cuts that will take effect on a time schedule without regard to economic conditions at that time.

So, Government spending is to be cut beginning in 2012. But what if we’re not out of our sick economy then and still have high levels of unemployed? Then we’ll be taking away demand from the private sector and, assuming we still have a trade deficit, condemning the economy to either a downturn, or a private debt-financed expansion (credit bubbles again). And what if we’re still in a depressed state by 2015? Then we’ll be facing mandated spending cuts of $427 Billion or so (according to Jan Schakowsky’s new “progressive” deficit reduction plan), at a time when we will still need the additions to private sector financial assets that Government deficits provide.

Even worse, larger cuts over the years proposed by the Commission will provide a continuous drag on the economy and the well-being of our children and grandchildren without regard to current economic conditions in the out tears. The insanity of the Catfood Commission and the deficit hawks is that Government economic policy ought to be put into a framework of constraints by us now without regard to economic conditions that may obtain in the future. This is an engineer’s newtonian approach to the economy. The economy, however, is a complex adaptive system and both it and we have to adapt as we go along.

Our most important tool for adaptation is the capability of the Federal Government to add financial assets to the private sector when demand is slack and those assets are needed, and to subtract such assets by taxing when demand is overheated and we see inflation. These powers of the Federal Government should never be constrained or compromised on the basis of a long-term plan of any kind, because they are our most important tools for coping with unexpected and unwelcome change.

The President, the deficit hawks, and even the deficit doves, by focusing on a non-existent long-term debt/insolvency fantasy (see Stephanie Kelton on solvency too), rather than trying to produce full employment and price stability in the here and now, don’t know what’s good for them and us. We need them off our backs. They’re the problem; not the solution!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

The Tenth Thing to Do – Not!!!

8:02 pm in Uncategorized by letsgetitdone

[Ed. note: What do you think? Is the national debt really one of the most urgent things on the To-Do List?]

Earlier this month, Thomas Geoghegan wrote a piece for The Nation telling the Democrats the ten things they could do to really get the base excited, and at the same time do good things for the country. Here’s his list.

1. Raise Social Security to 50 percent of working income.

2. Let’s extend Medicare to people 55 to 65.

3. Make it a civil right to join, or not to join, a labor union.

4. Put in a usury cap of 16 percent.

5. Set up small government banks like the German Sparkasse.

6. Give everyone the right to six days of vacation — six consecutive paid working days.

7. Let employees sue corporate officers for breach of fiduciary duty to the corporation.

8. Pass a College Bill of Rights.

9. End the filibuster.

10. Get the country out of debt.

Well, I might disagree with one or two of the first nine items. For example, I’d go for Medicare for All, and I’d also put in a usury cap of 6 points over prime, since a cap of 16 percent would still leave the banks with enormous profits on credit costs of near zero for them right now. But where I think Geoghegan is way off base is on getting the country out of debt. I’d like to keep this post as short as possible, so I’ll focus on just a few of his views. He says::

Finally, we have to take back the GOP’s big issue, the federal debt. Indeed, for every kind of debt — government, consumer, trade — the Democrats have to be the party that gets the country out of debt. That’s the only way to bring back a fair and just economy that lifts the middle class. As debt piles up, even our base is freaking out. Deep down, people grasp that America got into this mess with too much private debt. "Hey, if we’re all trying to get our own debt down, how does it make sense for the government to run it up?"

This statement conflates a number of different problems under the same heading — “debt.” But these “debts” are very different, and Geoghegan doesn’t explain either their differences or their relationships. He only assumes that “debt” is a bad thing, and that we have to get rid of it to please the base. But what are the three kinds of “debt” and how do they differ? Well, first, Federal debt is that part of the deficit (the difference between tax and other revenues of the Government, and Federal spending) that the Federal Government has matched with the sum of its outstanding debt instruments. Second, non-Federal debt is the sum of loans outstanding incurred by other Government entities in the United States, and by private sector entities: individuals, corporations, and other organizational entities. . . .

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