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An Open Letter to Don Beyer, VA – 8th Candidate for Congress

8:08 am in Uncategorized by letsgetitdone

(Author’s note: My apologies: this one’s about 6 times longer than the ideal 1000 word post. I just didn’t feel right about breaking it up into parts, however, because that lose the continuity. So, please bear with it. I think a lot of candiates for Congress need to get these questions from angry constituents.)

My Congressman, Jim Moran, is retiring this year and his seat is up for grabs in the VA – 8th Congressional District. This is a solidly blue district made even more solid by the Republican gerrymander following their win in the disastrous elections (for poor people, for women, for the middle class, and for minorities) of 2010 in Virginia. So, the question is, which of the eleven candidates who are running in the primary will win it, and become the heavy favorite to win the Congressional election in November.

The heavy primary favorite is Don Beyer, a noted auto dealer in Northern Virginia, who has served as Lieutenant Governor twice, and also as Ambassador to Switzerland. My impression of Ambassador Beyer has been favorable. I have a friend who bought cars from him over many years and who had his Volvos serviced at his dealership all the while, and he had nothing but good things to say about the integrity of the service he received.

That said, however, and personal characteristics aside, I’d like Beyer to clarify his positions on the issues. So, I’m addressing this open letter to him. Read the rest of this entry →

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 →

What Now?

8:34 pm in Uncategorized by letsgetitdone

Today, John Boehner bowed to the inevitable logic of the impending political season and placed a “clean” debt ceiling increase bill on the floor of the House. At this writing, the bill passed with 28 Republican and 193 Democratic votes. Now it moves on to the Senate, where it is expected to pass in time to allow the Treasury to keep issuing debt instruments.

So, now we have had agreement on a budget partially rolling back the sequester, and the Republican leadership appears to have decided not to have another debt ceiling crisis. I wrote a post called “What Happens Now?” just after the Government shutdown ended last October. There I analyzed the political situation and made a number of predictions about the short-term future. Here’s how I answered the question: “Growth and Jobs or Shutdowns and Debt Ceiling Crises?” Read the rest of this entry →

The Five Worst Reasons Why the National Debt Should Matter To You: Part Four, The Three Real Reasons

2:15 pm in Uncategorized by letsgetitdone

This is the concluding post in a four part series on the “Top” reasons why the national debt should matter. In Part One, I considered “Fix the Debt’s” claim that high levels of debt cause high unemployment and argued that this is a false claim. In Part Two, I followed with a review of the historical record from 1930 to the present and showed that it refutes this claim throughout this period, and that there is not even one Administration where the evidence doesn’t contradict “Fix the Debt’s” theory. In Part Three I showed that the other four reasons advanced by “Fix the Debt” also had very little going for them. In this part, I’ll give reasons why the national debt does matter, and why we should fix it without breaking America, or causing people to suffer. Read the rest of this entry →

The Five Worst Reasons Why the National Debt Should Matter To You: Part Three, The Other Four Worst Reasons

3:06 pm in Uncategorized by letsgetitdone

In Part One of this series, I considered “Fix the Debt’s” claim that high levels of debt cause high unemployment and gave a few reasons why this is a false claim. In Part Two, I followed with a review of the historical record from 1930 to the present and showed that it refutes this claim throughout this period, and that there is not even one Administration where the evidence doesn’t contradict “Fix the Debts” theory. In this part I’ll continue my examination of the other four “top reasons” why “Fix the Debt” insists that the National Debt should matter to you.

2. Debt means more expensive consumer credit: home, auto, student loans, as well as credit cards.

Growing federal debt can drive up interest rates throughout the American economy. That means higher interest rates for people across the country who may be taking out loans for a home, a new car or truck, to pay down credit card cards or for education costs. Higher interest costs mean they will all be more expensive, resulting in higher monthly payments.

Response: This is a proverbial red herring. Interest rates in the United States aren’t determined by private markets, they’re determined primarily by the Federal Reserve, or by the Fed in collaboration with the Treasury. That is not to say that markets can’t drive up interest rates if the Fed does nothing about it. But if the Fed chooses to take counteraction, then it can determine the term structure of interest rates across the Board.

3. Delaying action on the national debt means it will be much more difficult to protect Medicare and Social Security from abrupt, severe, and widespread cuts in the future on all beneficiaries.

Social Security’s disability program will exhaust its assets in 2016, the overall Social Security trust funds will be exhausted in 2033, and the Medicare Trust Fund will run out in 2026. Some of those dates may seem like a long time away, but if we want to protect beneficiaries who rely on these programs from severe and abrupt cuts – especially the elderly who have used up all their savings and other vulnerable groups – we need to start taking gradual steps now.

Response: All of this is false. It assumes that we will fund safety net programs in the way we do today, by continuing to issue debt, and it also assumes that continuing to issue debt and having higher levels of debt are problems for a fiat sovereign. They’re not! Fiat sovereigns can continue to deficit spend regardless of their debt or debt-to-GDP ratio levels. And if we want to get rid of or reduce debt for political reasons, then Congress needs to guarantee annual funding for these programs in perpetuity and for the Executive to ensure that funds are there by using Platinum Coin Seigniorage (PCS), to supply the reserves to cover appropriated deficit spending.

Even if these alternatives aren’t available right now, however, it still makes no sense to cut safety net programs now, based on some long-range projections that may never come to pass. If people really will have to suffer later, because Congress and the Executive are refusing to use their power to remove the need for any suffering at all, then why should we, the people just accept that?

Much better to get ourselves a new Congress and a new President who will do what’s needed to remove any need for suffering at all. We certainly should not let today’s politicians rob us now, so we can plan ahead for poverty, when we have as much as 25 years to replace this crew of reprobates with people who will vote in the interests of most of the people, most of the time, and who will take back the gains of the 1% extracted from the economy and the Government through political influence and outright fraud.

4. If we do not address the debt now, federal investments in education, infrastructure, and research will decline.

We currently spend nearly $225 billion each year in interest payments alone on the national debt. And that number will only continue to rise. These payments – which have to be made – reduce our ability to fund critical investments in areas such as education, infrastructure, and research that are vital parts of a strong economy. In addition, the mindless sequester continued to cut spending throughout many of these programs, without making any decisions on where to target the savings and without focusing on the most unsustainable areas of the budget: increasingly-costly entitlement spending and an outdated, inefficient tax code.

Response: Yet another fairy tale for the gullible. Yes, interest payments are at $225 Billion per year. That’s about 1.5% of GDP. During the 1980s that figure was more than 5% of GDP. Why did it go down?

Not because our national debt got smaller; but because the Federal Reserve drove interest rates down, allowing the Treasury to sell securities at lower interest rates. Again, the Fed can drive down interest rates to virtually zero if it wishes to, and can keep the interest bill of the United States as low as it wishes, ensuring that interest on the national debt will never be a threat to the rest of the budget. So, forget about this. Interest payments on Treasuries can never be a threat to the solvency of the United States as long we maintain the present fiat currency system we’ve had since 1971.

But, of course, apart from such action by the Fed, the option of PCS is always open to the Treasury. It can pay back whatever portion of the debt it likes and refrain from issuing any more debt. So, over time, the Treasury can lower its interest costs as low as it wishes if it believes interest payments are becoming either a financial or a political problem.

5. Taking steps to address our deficit now would mean a more robust economy and significant job growth over the next 10 years.

A Congressional Budget Office analysis indicates that $2 trillion in deficit reduction over ten years could grow our economy by nearly an additional 1 percent by 2023. A healthy, growing economy means more good jobs and higher wages for hardworking Americans.

Response: The CBO projections about deficit reduction growing our economy are wrong. First, because CBO projections are mostly wrong. They’re even wrong four months out. For example, compare CBO projections on the anticipated 2013 deficit published in January and May of 2013. CBO failed to project the four years of Clinton Administration surpluses. It failed to project the recession at the end of the Clinton Administration at the beginning of the year 2000. It failed to project the crash of 2008 in early 2008, and even a few months before the crash.

Then it failed to project the seriousness of the recession in January of 2009. It failed to project the Clinton recovery in 1993, or the boom in Clinton’s second term. All these were relatively short-term errors. But, forecasting errors due to false models accumulate drastically over time. So, CBO has nil capacity to project over a period of ten or more years. All one can really count on is that CBO (and all the other well-known projectionistas will be wrong.

CBO’s projections do not take into account the macroeconomic sectoral financial balances. So, it doesn’t even recognize that long-term proactive deficit reduction means reducing Government additions of Net Financial Assets (NFAs) into the private economy. Of course, lower NFA additions over a decade, due to deficit reduction, do not guarantee a contracting economy and high unemployment in 2023. But, in the absence of a private credit bubble, which will bring another crash sooner or later, they make it much more likely that CBO’s projection will prove false.

In short, the idea that $2 Trillion in deficit reduction now will produce a healthier, more robust economy is false. We might have a more rapidly growing economy in 2023, even with deficit reduction, if the private sector, supported by the Fed, blows that big credit bubble. But that growth will not mean a healthy, robust economy. It will mean a sick one on the point of a huge deflationary collapse produced by another debt crisis. And while the new class of Peterson plutocrats might greatly desire such a result so that they can extract most of the rest of the financial resources of the 99%, I think the rest of us would prefer to base our future expansions on the actual additions to private NFAs produced by Government spending that is not offset by tax revenue.

So, we’ve now seen that “Fix the Debt’s” five top reasons why the national debt should matter to you, are actually the five worst reasons why it should matter. However, there are at least three REAL reasons why the national debt should matter, and why we should fix it without breaking America, or causing people to suffer. In the concluding, Part Four of this series, I’ll give these reasons.

(Cross-posted from New Economic Perspectives.)

The Five Worst Reasons Why the National Debt Should Matter To You: Part One, High Debt Levels and Jobs

10:34 am in Uncategorized by letsgetitdone

Your Social Security, My Pocket

I came across a post from the “Fix the Debt” campaign last month called “The Top Five Worst Reasons Why the National Debt Should Matter to You.” It’s a post full of debt/deficit lies that cry out for correction. That’s what I’ll provide in this series.

1. High debt levels = fewer jobs and lower wages

In times of fiscal and economic uncertainty, consumers and businesses reduce investment and delay projects because investment is costly to reverse. Higher government borrowing can also drive up interest rates once the economy recovers, reducing the access and affordability of funds for consumers and businesses to borrow and invest in new ventures and ideas. This can hold back the economy, resulting in fewer jobs and lower wages down the road.

Response: What’s with the colloquial use of the ‘equals sign’ in this statement? Is the “Fix the Debt” campaign trying to say that there’s an identity between high debt levels and fewer jobs/lower wages? Is it trying to say that fewer jobs/lower wages cause high debt? Are they trying to say that there’s mutual causation between the two over time? Or are they trying to say something more complex than these things?

The summary statement after the headline indicates that the “equals” is an ambiguous way of making the straightforward claim that high debt levels trigger a causal chain ending with fewer jobs and lower wages. Here are two ways of addressing this claim: is it true, or even likely, given the data; and even if it is true, then so what?

Addressing “truth” first, it’s not! There’s plenty of evidence (See Part Two) refuting the idea that high public debt levels cause fewer jobs and lower wages in nations like the United States that use a non-convertible fiat currency, a floating exchange rate, and have no debts in currencies they do not issue.

In fact, even before 1971, when the United States closed the gold window allowing convertibility to gold on international exchanges and arrived at our current fiat currency system, the data still refute this claimed identity and suggest, that, if anything, the causation is reversed. In Part Two I’ve added a historical addendum dating from 1930 to the present showing that the evidence refutes this theory about the causes of higher unemployment.

Read it and see what’s happened for yourself; but the upshot is that this theory is pure fiction. Its narrative hasn’t happened once in the United States since 1930.

Now, on to “so what.” Let’s, for the sake of argument, say that high debt or debt-to-GDP levels did cause high unemployment, and that Government debt is a problem. The “Fix the Debt” campaign wants to respond to this by cutting Government deficit spending, raising taxes and following a long-term deficit reduction program featuring cuts to social safety net programs.

But why follow that unnecessarily painful economy-contracting, middle-class depriving strategy? The United States is a fiat currency sovereign. It doesn’t have to borrow back its own currency and reserves from people who are holding those.

It doesn’t have to sell any more debt instruments, providing unearned profits primarily to wealthy individuals and foreign nations. Congress can either provide the Treasury Department with the authority to create whatever money it needs to repay the debt as it falls due and to perform whatever deficit spending chooses to appropriate; or the Executive branch can use existing Platinum Coin Seigniorage (PCS) authority to fill the public purse with all the dollar reserves needed to do both of these things.

I’ve outlined how this works in numerous posts at this site and others, also in my kindle e-book. The process is very straightforward, will not cause inflation, and is legal under current law. So, if the “Fix the Debt” campaign is really worried about high unemployment and fixing the debt, then I challenge “Fix the Debt” to support my petition for the President to order the Secretary to mint a $60 T platinum coin immediately to accomplish this without in any way compromising the safety net or hurting the economy.

I don’t think “Fix the Debt” will support this proposal however. The reason why is that “Fix the Debt” is a front group for a very long-term effort by Peter G. Peterson to gut the social safety net and privatize Social Security. Peterson and the various front groups he funds through the Peter G. Peterson Foundation aren’t really interested in fixing the debt. They understand that the public debt is no danger to a fiat sovereign like the US, and doesn’t cause high unemployment.

What they are really interested in is persuading the public that patriotism demands crippling the safety net in the name of fiscal responsibility. If they were not, and they really think that “teh debt” is a cause of high unemployment, then they would join me in supporting one of the two proposals I advanced earlier for “Fixing the Debt.” Read the rest of this entry →

What Would You Have the President Do? Part III, Doing Some Economic and Social Justice

7:23 pm in Uncategorized by letsgetitdone

The first two Parts in this series began answering the question “what would u have him do?” It arose in the context of a Post at Naked Capitalism by Michael Hudson with some additions by Yves Smith. A commenter, objecting to the criticism of the President’s Knox College speech, issued the challenge in connection with the President’s promised effort to restore prosperity to the middle class and the poor.

In Part I, “Necessary First Moves,” I offered and described two of these: ending the filibuster, and using High Value Platinum Coin Seigniorage (HVPCS) to fill the Treasury General Account (TGA) with $60 Trillion in reserves. In Part II, I offered a number of proposals aimed at getting to full employment.

These included: a full payroll tax holiday; a guarantee of annual entitlement spending without regard to “trust fund” balances; State revenue sharing grants of roughly $1600 per person; and a Federal Job Guarantee program establishing jobs in local communities at a living wage with full fringe benefits. This third and last part will offer proposals for doing some economic and social justice to begin to right the wrongs the neoliberal globalizing political/economic/ideological system has inflicted on the American middle class and those living in poverty. Here are the proposals.

Fix the Health Insurance System

I want the President to ask Congress to pass John Conyers’s HR 676, enhanced Medicare for All bill, a full coverage, no co-pay health care insurance program. A simple, direct, 35 page piece of legislation, Conyers builds in a tax to fund this program; but the decision about whether it falls into deficit spending, or is “paid for”, ought to depend on whether full employment is reached or not. If it hasn’t, then this tax should be used as an automatic stabilizer, reduced according to a rule when the private sector is shedding jobs, increased as the private sector adds jobs, until the tax is fully re-imposed at full private sector employment, to prevent the economy from overheating.

Increase the minimum Social Security benefit

A simple idea, due to Warren Mosler, is to increase the SS benefit minimum to $2,000 per month for every retiree. This will be a positive boost to the economy, and it will provide a decent standard of living to middle class and poor retirees. But, in addition, it will provide redress for years of SS cost of living increases that didn’t take into account the rapid rise of medical care spending by retirees. Health care costs escalated much more rapidly than the CPI over the past few decades, but SS COLAs haven’t taken account of this increasingly disproportionate spending by older people on medical care and insurance.

Redeem all outstanding student loan debt and provide for Federal funding of free tuition at State Universities, Colleges and Community Colleges

Student loan debt has become an appreciable drag on our economy, and its existence is not fair, because college isn’t optional for middle class prosperity, and student loan interest rates are much too high given that banks have such low interest rates on their own loans. So, if we’re really committed to middle class prosperity, and to equality of opportunity, we have to do what many other nations are doing increasingly, and provide free or very low cost college educations for those wanting them who have graduated from high school.

TINA applies to this issue if it applies to anything. If we want to avoid plutocracy, then this is something we must do. HVPCS allows us to do it.

Put a stop to Too Big To Fail by ending, investigating, and penalizing control fraud

– After monitoring the big banks for control fraud, investigate them, find it, and then take them into resolution ending the existence of current Systematically Dangerous Institutions (SDIs); in the American banking system.

– Then proceed to investigate individuals responsible for control fraud in these institutions, prosecute offenders, and apply appropriate criminal penalties.

It’s hard to over-emphasize the importance of doing these two things. Apart from removing risks to the banking system and to the economy, the issue of moral hazard is an over-riding one here. I don’t know about you, but whenever I hear someone saying that we’re a nation of laws these days, I feel nauseated by the obvious dishonesty in such a statement.

Most of the nation may be subject to laws, but obviously the likes of Jamie Dimon, Lloyd Blankfein, Brian Moynihan, other big banksters, mortgage companies, MERS, loan officers, appraisers, and loan servicers are not. And neither are various high office holders and people in the intelligence community who have routinely violated the Geneva conventions, perjured themselves before Congress, performed surveillance in clear violation of the limits established in the Patriot Act, and who, in doing so, violated their oaths of office.

The existence of a system of laws that applies only to some of us and not to all of us and that is sometimes secret is simply repugnant, and corrosive to the legitimacy of government and to all laws. Anti-government feelings and cynicism about the legitimacy of government are already widespread in the United States. If the present failures to enforce the law continue to exist, we will see increasing mistrust in the government and rejection of it as an institution. I don’t think very many of us care to travel to the end of that particular road.

End the household debt and housing crises and the possibility of new SDIs arising again to corrupt the banking system

This will require a number of inter-related policies:

– Have the Federally run big banks take big write-downs on mortgage principal to 90% of the current market value of homes;

– Have them lower credit card interest rates to a few points over prime;

– Assuming Medicare for All, HR 676, is passed first as specified above, then:

– pass legislation allowing the Government to buy up the debts owed by consumers to the health insurance industry, and to providers, and to then cancel these debts;

– pass legislation allowing previous owners of foreclosed homes involving MERS to take them back, while providing grants to the previous owners for fixing up the homes the big banks allowed to deteriorate; if the foreclosed homes have already been sold, provide government compensation to the previous owners equal to the equity existing before the housing crisis began.

– pass legislation nationalizing the regional Federal Reserve Banks and requiring that their bank managers be Federal Senior Executive Service employees, and their employees be civil servants;

– pass legislation prohibiting member banks of the Federal Reserve System from trading in derivatives or novel financial instruments, or from engaging in investment banking.

This policy proposal is both a “debt jubilee” for homeowners, and those threatened with financial hardship by our health insurance and provider systems and their financial practices, and also a restructuring of the banking system, so that SDIs cannot emerge again. In addition, it takes into account the wholesale mortgage fraud leading to the housing crisis; restitution to those victimized by the housing and economic crashes, and also provides for finding the people who committed the frauds and seeing that they are subject to the law. This last is necessary to eliminate the moral hazard in today’s still existing “To Big To Fail” policies, and to help us to restore the rule of law to all, and not just to people the government finds worthy of prosecution and punishment.

Fix U.S. Infrastructure

Pass legislation to fix it over five years at $440 B per year. Do it with deficit spending if there’s still unemployment; do it without such spending if there’s full employment.

An “orwellian” speech?

The policies mentioned in this post and in Part II, among others in the areas of reinventing energy foundations, educational reform, creating a sustainable environment, and ending climate change, can all be implemented once we have austerity politics and the filibuster out of the picture (See Part I). Their effects will solve the problems mentioned, and, just as importantly, will reverse the growth of inequality in America by shoring up the economic security of the middle class and the poor, and restoring economic opportunity. In addition, the JG and infrastructure programs will enrich our stock of public goods and our supply of public and community services.

The policies that we can implement once “How we gonna pay for it” and austerity politics are gone, due to using High Value Platinum Coin Seigniorage, can create a Green New Deal. They can restore the promise of American Democracy to our children and Grandchildren, and bring the prosperity to the middle class and poor people that President Obama says he wants.

But two questions remain. First, does President Obama really want to create middle class prosperity as he says, or was his speech orwellian as Yves Smith and Michael Hudson suggest? And second, if by some small chance the President is sincere in his intention to pursue increased prosperity for the middle class and the poor, then how can a program like the one I’ve outlined be passed with the House of Representatives in the hands of the Republicans?

My answer to the first question is that the President did give an orwellian speech and that his speech and his current tour is for the purpose of building support to get the Republicans to accept a settlement including the President’s much sought after “grand bargain” providing for major entitlement cuts in Social Security and Medicare. But assuming the President were to attempt to implement the kind of program I propose, then I think that simply proposing the program, and campaigning on it, in the context of a full public purse created by HVPCS, would place great pressure on the Republicans to pass at least a few of its elements.

If they did not, then only meanness would account for their failure to do so, when the money is there. The President and the Democrats could then run and win on the rejected part of the program in 2014, and implement it in 2015, whether or not the Republicans continued to oppose it.

So, all this and more too, is what I would have the President do. I blame him for not doing it. I blame him for not acting like one of the inheritors of FDR. And I also blame him for his constant mere lip service to Democratic ideals, accompanied by actions which continuously conflict with these ideals.

President Obama is a walking chasm between his rhetoric and his actions. And there is no way that those who ask: “What would u have him do?” can bridge that chasm. So, they need to stop asking that question, and also stop pointing out that “He can’t do it alone.”

No one’s asking him to do anything alone. He’ll need the help of the Democratic Party, some Republicans, and many aroused American voters to get this done. What I’m pointing out however, is that he’s not doing what he can be doing given the powers of his office, coupled with the possibilities for action and mobilization of his party and the American people. This situation has existed for the four-and-a-half years he’s been in office. He’s due plenty of blame for that, as well as our opprobrium.

He is not due sympathy from us because life is so tough for him. Life has been tough for many, many Americans since the crash of 2008, and for many others for decades before that. But for him, and in recent years, at least, it is a charmed play on a grand stage living in a bubble, and he has done very little as yet to help those who elected him in a state of national crisis.

So, I think he is not due sympathy, but a time of accountability for his actual performance. That’s what we owe him, accountability, not rationalizations and excuses for his failure to perform in our interests, rather than in those of the rising plutocracy.

(Cross-posted from New Economic Perspectives.)

What Would You Have the President Do? Part II, Getting to Full Employment

4:09 pm in Uncategorized by letsgetitdone

Responding to a Post at Naked Capitalism by Michael Hudson with some additions by Yves Smith, a commenter, objecting to the criticism of the President’s Knox College speech, issued the challenge ”What would u have him do?” in connection with his promised effort to restore prosperity to the middle class and the poor. In this series I’m giving my answer to that question. In Part I, “Necessary First Moves,” I offered and described two of these. Ending the filibuster, and using High Value Platinum Coin Seigniorage (HVPCS) to fill the Treasury General Account (TGA) with $60 Trillion in reserves. Read the rest of this entry →

What Would You Have the President Do? Part I, Necessary First Moves

11:20 am in Uncategorized by letsgetitdone

There were varying reactions to the President’s recent speech at Knox College this week. My reaction was that the speech was deeply dishonest in light of the President’s previous policies, actions, and results, and I intended to do a critique, but Michael Hudson and Yves Smith beat me to it. In a fine post at Naked Capitalism, entitled “Michael Hudson Shreds Obama’s Orwellian Speech On Middle Class Prosperity,” Michael Hudson, with occasional added comments from Yves, deconstructs the speech paragraph by paragraph, and sometimes line-by-line, pointing out disingenuous assertions and outright dishonesty. In her introduction Yves remarks on the context:

The worst is that Obama apparently plans a series of Big Lie speeches on his “vision for rebuilding an economy that puts the middle class — and those fighting to join it – front and center.” That’s at best an afterthought, since he’s given the economy over to an at best indifferent and at worst predatory elite that have no interest in giving it back.

The reaction to the post was vigorous with most of the discussion supporting and amplifying the views presented. However, there was one comment which said:

Have you mentioned the fact that he’s right on every issue mentioned?

Would you rather have a FDR, or Truman or Johnson as our president? These men, while great, are not that much different from the current President.

What would u have him do? Enact single-payer health care, small class sizes and the best teachers imaginable, a minimum wage at $21.00 an hour and an average wage at $40 (where it should be), and a lower private debt burden across the board with a wave of one of his “Hope and Change” wands?

I am proud to have voted for this man. He can’t do it alone. And going after him while offering no positive alternatives yourself to me is the height of contemptibility.

Of course, that persistent rationalization offered by the world’s Obamabots is my cue. What I want him to do falls into two major categories. First, there are necessary first moves he can probably get done which will facilitate passing all the other policies I propose. Second, there are the policies that will restore prosperity to poor and middle class over time. In this post I’ll cover the necessary first moves. In Parts ll and III I’ll offer and briefly describe the substantive policies I want him to implement.

Get rid of the filibuster

He can start by convening Congressional Democrats: House and Senate, and telling them that the middle class and American Democracy are simultaneously threatened and that he can’t save the situation and ensure a Democratic victory in 2014, unless, as a first step, the Democrats in the Senate agree to get rid of the filibuster entirely, and immediately, and accept majority rule in the Senate on all matters not explicitly mentioned in the Constitution.

Of course, the House Democrats have nothing formally to say about what the Senate does. But their presence is important for impressing upon the Senators the importance to the national party of doing this, and then going on offense against the Republicans, so that the Democrats can retain control of the Senate and enable them to once again get something to run on, so they can get a majority in the House. In saying this, I’m not saying that returning Democrats to power will get us to Democracy. Far from it. But I do think that it will slow the evolution toward plutocratic fascism, and create opportunities for enacting new and helpful policies provided the right Democrats are elected. I know, I know. That’s an awfully big qualification. But people certainly can work for that result.

And naturally, it would be much better if we could have a Green Party majority in the House in 2014, or a Democratic/Green party majority coalition than just electing a Democratic majority. But getting that outcome would be an even taller order, and is more unlikely to happen if we see a Democratic Party turn toward a Green New Deal.

Use High Value Platinum Coin Seigniorage (HVPCS) to Change the Political Environment and Remove Any Possible Rationale for Federal Government Austerity

Next, I would have the President use HVPCS. Under authority provided by Congress in 1996, the Treasury can have the US Mint issue platinum coins with face values specified by the Secretary. So, for example, the Mint should issue a $60 Trillion coin; deposit it at the Fed, where the reserves credited to the Mint’s account for this legal tender would eventually wind up in the Treasury General Account (TGA).

The immediate promise of HVPCS for America, of course, is the end of austerity politics, periodic debt ceiling crises, fiscal cliffs, sequesters, and budget crises. HVPCS directly ends debt ceiling crises, because the debt is no longer relevant except as a constantly shrinking obligation that will be paid off as it falls due.

As for fiscal cliffs, sequesters, and budget crises, their justification is primarily in the false claim that the US is running out of money, and must slow the growth of the national debt enough to allow the debt-to-GDP ratio to shrink, so that we can’t afford to implement the deficit spending that may be necessary to create full employment, pass Medicare for All, and do other things that a majority of the population supports heavily, but does not insist upon in the face of supposed budget problems. But it’s hard to make a credible claim that “we’re running out of money” when we 1) have between $50 Trillion and $60 Trillion in the TGA, and 2) when the President has just demonstrated that the Federal Government can create reserves to fill the public purse at will.

I’ve discussed the technicalities, history, economic, legal, and political aspects of HVPCS, and the many objections to it, in my recent e-book, and will leave the details for you to read there. But it’s very important to emphasize the essential role of the President in getting over the initial hysterical reaction that would ensue if he uses HVPCS. After using it and getting immediate credit for the face value of the platinum coin from the Federal Reserve, he must then make a crisis speech informing the country about the action he’s taken to fill the public purse and why he found it necessary to do that and change the American of debt repayment and deficit spending.

Following that crisis speech he must go on tour, carrying his message to the people and emphasizing the new freedom of the Government to pay down and eventually pay off the public debt, while, at the same time being able to “pay for” any deficit spending Congress might choose to enact for a long time to come. He needs to explain that using HVPCS is fiscal responsibility since it ends the Government’s borrowing back its own currency and eliminates any possible justification for “austerity” as long as we have less than a full employment economy. He also needs to emphasize that HVPCS will not cause any more inflation than present policies and why he thinks that is true.

In conveying this message, repetition and mobilization of all Administration resources is essential. He must not give any ground to austerians and Republicans who, while constantly complaining about the public debt, will hate the HVPCS solution to the problem. In other words he must not compromise on this at all, but must implement HVPCS, make filling the public purse a fait accompli, and then go on with the more positive politics of using the policy space created by a full TGA to decrease inequality in the US and create the greater prosperity for the middle class and the poor that he says he wants.

Remember, there would be no fiscal cliffs, sequesters, or budget crises, without the claim that there is a Government Budget Constraint (GBC). Once we dispel that claim with HVPCS, these things will be gone with the wind, and the policy space will be there for the President and others in Congress to propose a range of policies to restore middle class prosperity without the inevitable objections that such policies will either increase the debt, or lead to higher taxes.

The House won’t want to pass these policies. But House members who want to vote against them won’t be able to plead Federal Government poverty, or “fiscal responsibility,” not with between $50 Trillion and $60 Trillion in the Treasury’s bank account at the time of the new policy proposals. So, when they employ obstructionism without any perceived good reason for it, they will open the way for Democrats to retain the Senate and regain the House, which, without the filibuster, will cut the legs off obstructionism, and make it possible to pass the policies I want the President to propose, anyway. Again, Parts II and III of this series will offer and briefly discuss each of my proposals.

(Cross-posted from New Economic Perspectives.)

Pass “The Pay China First Act:” End Debt Ceiling Hostage-taking for Good!

4:24 pm in Uncategorized by letsgetitdone

On May 9, 2013, The Republican House passed H.R. 807 the Full Faith and Credit Act. The Bill says in part:

(a) In General- In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the Secretary of the Treasury shall, in addition to any other authority provided by law, issue obligations under chapter 31 of title 31, United States Code, to pay with legal tender, and solely for the purpose of paying, the principal and interest on obligations of the United States described in subsection (b) after the date of the enactment of this Act.
(b) Obligations Described- For purposes of this subsection, obligations described in this subsection are obligations which are–
(1) held by the public, or
(2) held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund.

So, in brief, the Bill provides for the Treasury, even when it is about to reach the debt ceiling, to issue additional debt to pay principal and interest on debt instruments issued to the public including foreign nations, and to pay principal and interest on Social Security (SS) “trust fund bonds” in the course of paying SS recipients.

Reactions to the Act immediately fell into two categories. Some hailed it as a move toward fiscal responsibility, while others saw it as another demonstration of Republican fiscal irresponsibility paving the way for US default on some obligations not prioritized by the bill, while making sure that bond market interests and “China” would get paid what they were owed, while the American people would be stiffed, unless Democrats gave the Republicans what they wanted in the upcoming debt ceiling crisis now projected for this October. Here are some typical reactions of the two types.

From John Avlon at the Daily Beast we have:

But even Speaker John Boehner realizes that the 50 or so radicals on the far right of his own party—the Bachmann, Broun, Gohmert and King crew—are the greatest impediment to responsible self-government right now.

That’s why the new responsible Republican proposal, which passed the House Thursday by a vote of 221-207, could be the best way to defuse the debt ceiling from its most destructive impact. . . .

So the Full Faith and Credit Act should be a no-brainer. But the Obama administration is opposing the measure, releasing a Statement of Administration from the Office of Management and Budget that stated H.R. 807 would “result in Congress refusing to pay obligations it has already agreed to … this bill would threaten the full faith and credit of the United States … this legislation is unwise, unworkable, and unacceptably risky.”

And here’s one from Travis Waldron at Think Progress:

But such a plan makes it clear that the U.S. will meet only some of its obligations, leaving many Americans, including troops, veterans, and the elderly, out in the cold. . . .

Worse yet, the Republican plan doesn’t allow the nation to avoid default. If the U.S. services its debt payments but still misses others, it is still defaulting on payments it is required to make. Since the bill only allows Treasury to make payments as it receives revenues, and the bulk of its payments are made at the beginning of the month even though revenues don’t come in until later, it would almost certainly be unable to meet at least some of its obligations.

When the GOP has considered similar plans before, Treasury officials have called it “unworkable.” Bipartisan analysts said it was “essentially impossible.” Failing to fulfill spending obligations would be “the first step to becoming a banana republic,” a Bush-era Treasury official said. Instead of inspiring confidence among investors, bondholders, and the American people, the legislation would zap it.

Far from preventing default, the Full Faith and Credit Act would essentially ensure it. That wouldn’t just put paying China ahead of senior citizens and members of the military — it would also hammer economic growth both in the United States and across the world. (HTHuffington Post)

Calling this a “responsible” bill as the Daily Beast did is outrageous, and, of course, Waldron is quite right to point out that the bill is fundamentally irresponsible because if it were to pass and nothing more was done it would still not avoid a default inflicted by Republicans who refuse to raise the debt ceiling for the sake of hostage-taking. Nevertheless, even though I agree with Waldron and the President that the bill is irresponsible, I also think that the Democratic Senate should jump on the opportunity provided by the Republicans and pass it forthwith without Amendment, and that the President should sign it immediately, as part of a larger plan to take the debt ceiling off the table in all future negotiations. Here’s the plan.

Budget projections show that if the Bill is passed, then the Treasury would have the authority it needs to meet the majority of its projected deficit obligations and would lack only about $170 Billion in Fiscal 2014 to meet them all. Let’s look at CBO’s budget projection.

Total Revenues for the Treasury in 2014 are projected at $3.0 Trillion. Total Outlays are expected to be $3.6 Trillion. That’s a deficit of roughly $.6 Trillion, or $600 Billion. CBO projects net interest on debt owned by the public of $243 Billion, and I’ve estimated OASDI interest at about $225 Billion. Summing the two we see that the Full Faith and Credit Act would allow debt financing of $468 Billion, leaving a gap of about $130 Billion which Treasury can’t cover with debt instruments.

So, what can Treasury and the President do to meet its remaining obligations? The answer is that it can use Platinum Coin Seigniorage (PCS), an approach the Administration rejected in January of 2013 before the latest compromise with the Republicans allowing debt financing while temporarily suspending the debt ceiling. In January, the dominant proposal making the rounds in the blogosphere was that the Administration use a few Trillion Dollar Coins to defuse the crisis. I didn’t favor that, but preferred and still prefer a “shock and awe” $60 Trillion PCS strategy that would end austerity politics forever, if the President had the desire and the will to do that.

The President doesn’t have the desire and the will, or he would already have filled the public purse in this way. Assuming he still feels that he doesn’t want to end austerity politics, with its terrible effects on poor people and the middle class; but does want to avoid debt ceiling crises in the future, provided the Full Faith and Credit Act is passed without amendment, he can then:

– First, beginning at the start of fiscal 2014, mint platinum coins having face values of $20 Billion per month until the Federal Government is no longer in danger of failing to meet all its obligations. This is about twice the average amount of projected shortfall of $10.8 Billion per month corresponding to the $130 Billion annual shortfall projected. That amount should be enough to cover variations from the average, and also errors in the projection caused by possible recessionary effects due to the sequester and the FICA tax increase in January.

– Second the Government can keep doing this until Congress fully restores the capability of the Treasury to issue debt instruments alongside deficit spending Congress has appropriated. How long this will go on, depends on the Republicans, of course. But even over a year’s time, the amount minted would come nowhere near the Trillion Dollar Coin values the Administration found unpalatable a few months ago. In fact, if the debt ceiling crisis is resolved by year’s end, the amount minted wouldn’t exceed $60 Billion, hardly great enough to roil the international or bond markets, or most people, given the amount of Quantitative Easing (QE) the Fed has already done. If the debt ceiling crisis lasts any longer than that and the financial world gets roiled by the practice, then a) it will certainly prefer the minting of those coins to the alternative of default; and b) they’ll know which party to come down hard on in blaming someone for the continuing crisis.

– Third, at some point in this process, the Republicans will be willing to increase the debt ceiling, but since PCS is being used to avoid shutting down the government or defaulting, their leverage to extract concessions will make the debt ceiling negotiations much easier than they are today. I recommend that the Administration give away nothing to get the debt ceiling raised. It should simply insist on a no-strings attached permanent elimination of the ceiling; while pointing out that the Full Faith and Credit Act, coupled with PCS provides enough flexibility for the Treasury to continue spending appropriations and meet all the nation’s obligations, even if the debt ceiling is never raised.

This may seem to be a very hard line. But in passing the Full Faith and Credit Act, the House has given the Democrats the opportunity to use debt instruments to cover most of the deficit anyway. And PCS gives the Administration the power to cover the rest. So, the Republicans would have a choice of getting rid of the debt ceiling permanently, or allowing the minting of $20 Billion platinum coins at the beginning of every month. If that’s their choice, then I think they’ll get rid of the debt limit, before the President decides to mint a $60 Trillion Dollar coin, don’t you?

Update: CBO just released revisions to its projections for 2013 – 2023. Total Revenues for the Treasury in 2014 are now projected at $3.042 Trillion. Total Outlays are expected to be $3.602 Trillion. That’s a deficit of roughly $.56 Trillion, or $560 Billion. CBO projects net interest on debt owned by the public of $237 Billion, and I’ve estimated OASDI interest at about $225 Billion. Summing the two we see that the Full Faith and Credit Act would allow debt financing of $462 Billion, leaving a gap of about $98 Billion which Treasury can’t cover with debt instruments.

The smaller gap means that it may not be necessary to use $20 Billion platinum coins every month; but only $15 Billion coins to handle variations from the new average shortfall of about $8.2 Billion per month. Of course, if deficits accumulate faster than expected, it would be easy to simply begin minting $20 Billion coins.

(Cross-posted from New Economic Perspectives.)