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US Constitution Not a Suicide Pact:
posted at September 30, 2013 9:51 AM EDT
First: June 3, 2013
Last: October 13, 2013
US Constitution Not a Suicide Pact:
Obama Must Follow District of Columbia Mayor Vincent Gray: Declare the Entire Federal Government Essential and Keep It Fully Funded at Current Levels While Citing Multiple States of Emergency; Obey Fourteenth Amendment Against Unconstitutional Debt Ceiling and Default
The District of Columbia government has decided not to permit the Republican fanatics of chaos and anarchy to shut down the nation’s capital. On Wednesday, DC Mayor Vincent Gray declared all 30,000-plus District employees essential. He did this by sending a one-sentence notice to Sylvia Mathews Burwell, director of the Office of Management and Budget. Gray wrote:
“I am writing to inform you that I have determined that all operations of the government of the District of Columbia are ‘excepted’ activities essential to the protection of public safety, health, and property and therefore will continue to be performed during a lapse in appropriations.”
Obama must now do for the entire federal government what Mayor Gray has done for the District, which is serving in this case as a true laboratory of democracy. Obama should declare the entire federal government essential, and fund it at current levels unless and until Congress passes a new funding law or Continuing Resolution.
It is high time to end the absurd practice of letting a small minority of GOP sociopaths and fanatics threaten the General Welfare. Obama should simultaneously invoke the XIV Amendment and direct Treasury Secretary Lew to keep the government fully funded while meeting all current debt payments and other obligations irrespective of supposed “debt ceilings” or “debt limits.” The debt ceiling is unconstitutional, and bankrupting the nation by defaulting on US commitments is patently illegal. Jefferson and Lincoln were right: the US Constitution is not a suicide pact.
Here’s more on the subject: >
How Congress Could Fix Its Budget Woes, Permanently
As Congress struggles through one budget crisis after another, it is becoming increasingly evident that austerity doesn't work. We cannot possibly pay off a $16 trillion debt by tightening our belts, slashing public services, and raising taxes. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession. After a thorough analysis of statistics from dozens of countries forced to apply austerity plans by the World Bank and IMF, former World Bank chief economist Joseph Stiglitz called austerity plans a “suicide pact.”
Congress already has in its hands the power to solve the nation’s budget challenges – today and permanently. But it has been artificially constrained from using that power by misguided economic dogma, dogma generated by the interests it serves. We have bought into the idea that there is not enough money to feed and house our population, rebuild our roads and bridges, or fund our most important programs -- that there is no alternative but to slash budgets and deficits if we are to survive. We have a mountain of critical work to do, improving our schools, rebuilding our infrastructure, pursuing our research goals, and so forth. And with millions of unemployed and underemployed, the people are there to do it. What we don’t have, we are told, is just the money to bring workers and resources together.
But we do have it. Or we could.
Money today is simply a legal agreement between parties. Nothing backs it but “the full faith and credit of the United States.” The United States could issue its credit directly to fund its own budget, just as our forebears did in the American colonies and as Abraham Lincoln did in the Civil War.
Any serious discussion of this alternative has long been taboo among economists and politicians. But in a landmark speech on February 6, 2013, Adair Turner, chairman of Britain’s Financial Services Authority, broke the taboo with a historic speech recommending that approach. According to a February 7th article in Reuters, Turner is one of the most influential financial policy makers in the world. His recommendation was supported by a 75-page paper explaining why handing out newly-created money to citizens and governments could solve economic woes globally and would not lead to hyperinflation.
Our Money Exists Only at the Will and Pleasure of Banks
Government-issued money would work because it addresses the problem at its source. Today, we have no permanent money supply. People and governments are drowning in debt because our money comes into existence only as a debt to banks at interest. As Robert Hemphill of the Atlanta Federal Reserve observed in the 1930s:
We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve.
In the U.S. monetary system, the only money that is not borrowed from banks is the “base money” or “monetary base” created by the Treasury and the Federal Reserve (the Fed). The Treasury creates only the tiny portion consisting of coins. All of the rest is created by the Fed.
Despite its name, the Fed is at best only quasi-federal; and most of the money it creates is electronic rather than paper. We the people have no access to this money, which is not tur ned over to the government or the people but goes directly into the reserve accounts of private banks at the Fed.
It goes there and it stays there. Except for the small amount of “vault cash” available for withdrawal from commercial banks, bank reserves do not leave the doors of the central bank. According to Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:
[I]n a modern monetary system – fiat money, floating exchange rate world – there is absolutely no correlation between bank reserves and lending. . . . [B]anks do not lend “reserves”. . . .
Whether commercial banks let the reserves they have acquired through QE sit “idle” or lend them out in the internet bank market 10,000 times in one day among themselves, the aggregate reserves at the central bank at the end of that day will be the same.
Banks do not lend their reserves to us, but they do lend them to each other. The reserves are what they need to clear checks between banks. Reserves move from one reserve account to another; but the total money in bank reserve accounts remains unchanged, unless the Fed itself issues new money or extinguishes it.
The base money to which we have no access includes that created on a computer screen through “quantitative easing” (QE), which now exceeds $3 trillion. That explains why QE has not driven the economy into hyperinflation, as the deficit hawks have long predicted; and why it has not created jobs, as was its purported mission. The Fed’s QE money simply does not get into the circulating money supply at all.
What we the people have in our bank accounts is a mere reflection of the base money that is the exclusive domain of the bankers’ club. Banks borrow from the Fed and each other at near-zero rates, then lend this money to us at 4% or 8% or 30%, depending on what the market will bear. Like in a house of mirrors, the Fed’s “base money” gets multiplied over and over whenever “bank credit” is deposited and relent; and that illusory house of mirrors is what we call our money supply.
We Need “Quantitative Easing” for the People
The quantitative easing engaged in by central banks today is not what UK Professor Richard Werner intended when he invented the term. Werner advised the Japanese in the 1990s, when they were caught in a spiral of “debt deflation” like the one we are struggling with now. What he had in mind was credit creation by the central bank for productive purposes in the real, physical economy. But like central banks now, the Bank of Japan simply directed its QE firehose at the banks. Werner complains:
[A]ll QE is doing is to help banks increase the liquidity of their portfolios by getting rid of longer-dated and slightly less liquid assets and raising cash. . . . Reserve expansion is a standard monetarist policy and required no new label.
The QE he recommended was more along the lines of the money-printing engaged in by the American settlers in colonial times and by Abraham Lincoln during the American Civil War. The colonists’ paper scrip and Lincoln’s “greenbacks” consisted, not of bank loans, but of paper receipts from the government acknowledging goods and services delivered to the government. The receipts circulated as money in the economy, and in the colonies they were accepted in the payment of taxes.
The best of these models was in Benjamin Franklin’s colony of Pennsylvania, where government-issued money got into the economy by way of loans issued by a publicly-owned bank. Except for an excise tax on liquor, the government was funded entirely without taxes; there was no government debt; and price inflation did not result. In 1938, Dr. Richard A. Lester, an economist at Princeton University, wrote, “The price level during the 52 years prior to the American Revolution and while Pennsylvania was on a paper standard was more stable than the American price level has been during any succeeding fifty-year period.”
The Inflation Conundrum
The threat of price inflation is the excuse invariably used for discouraging this sort of “irresponsible” monetary policy today, based on the Milton Friedman dictum that “inflation is everywhere and always a monetary phenomenon.” When the quantity of money goes up, says the theory, more money will be chasing fewer goods, driving prices up.
What it overlooks is the supply side of the equation. As long as workers are sitting idle and materials are available, increased “demand” will put workers to work creating more “supply.” Supply will rise along with demand, and prices will remain stable.
True, today these additional workers might be in China or they might be robots. But the principle still holds: if we want the increased supply necessary to satisfy the needs of the people and the economy, more money must first be injected into the economy. Demand drives supply. People must have money in their pockets before they can shop, stimulating increased production. Production doesn’t need as many human workers as it once did. To get enough money in the economy to drive the needed supply, it might be time to issue a national dividend divided equally among the people.
Increased demand will drive up prices only when the economy hits full productive capacitys. It is at that point, and not before, that taxes may need to be levied—not to fund the federal budget, but to prevent “overheating” and keep prices stable. Overheating in the current economy could be a long time coming, however, since according to the Fed’s figures, $4 trillion needs to be added into the money supply just to get it back to where it was in 2008.
Taxes might be avoided altogether, if excess funds were pulled out with fees charged for various government services. A good place to start might be with banking services rendered by publicly-owned banks that returned their profits to the public.
Taking a Lesson from Iceland: Austerity Doesn’t Work
The Federal Reserve has lavished over $13 trillion in computer-generated bail-out money on the banks, and still the economy is flagging and the debt ceiling refuses to go away. If this money had been pumped into the real economy instead of into the black hole of the private banking system, we might have a thriving economy today.
We need to take a lesson from Iceland, which turned its hopelessly insolvent economy around when other European countries were drowning in debt despite severe austerity measures. Iceland’s president Olafur Grimson was asked at the Davos conference in January 2013 why his country had survived where Europe had failed. He replied:
I think it surprises a lot of people that a year ago we were accepted by the world as a failed financial system, but now we are back on recovery with economic growth and very little unemployment, and I think the primary reason is that . . . we didn’t follow the traditional prevailing orthodoxies of the Western world in the last 30 years. We introduced currency controls; we let the banks fail; we provided support for the poor; we didn’t introduce austerity measures of the scale you are seeing here in Europe. And the end result four years later is that Iceland is enjoying progress and recovery very different from the other countries that suffered from the financial crisis. [Emphasis added.]
[W]hy do [we] consider the banks to be the holy churches of the modern economy? . . . The theory that you have to bail out banks is a theory about bankers enjoying for their own profit the success and then letting ordinary people bear the failure through taxes and austerity, and people in enlightened democracies are not going to accept that in the long run.
The Road to Prosperity
We are waking up from the long night of our delusion. We do not need to follow the prevailing economic orthodoxies, which have consistently failed and are not corroborated by empirical data. We need a permanent money supply, and the money must come from somewhere. It is the right and duty of government to provide a money supply that is adequate and sustainable.It is also the duty of government to provide the public services necessary for a secure and prosperous life for its people. As Thomas Edison observed in the 1920s, if the government can issue a dollar bond, it can issue a dollar bill. Both are backed by “the full faith and credit of the United States.” The government can pay for all the services its people need and eliminate budget crises permanently, simply by issuing the dollars to pay for them, debt-free and interest
FORGET COMPROMISE: THE DEBT CEILING IS UNCONSTITUTIONAL
The debt ceiling crisis can be averted by enforcing the Fourteenth Amendment, which mandates the government to pay its debts already incurred, including pensions. That means Social Security, which IS an “entitlement,” in the original sense of the word. We’re entitled to it because we’ve paid for it with taxes.
The game of Russian roulette being played with the U.S. federal debt has been called a “grotesque political carnival” and political blackmail. The uproar stems from a statute that is unique to the United States and never did make much sense. First passed in 1917 and revised multiple times since, it imposes a dollar limit on the federal debt. What doesn’t make sense is that the same Congress that voted on the statute votes on the budget, which periodically exceeds the limit, requiring the statute to be revised. The debt ceiling has been raised 74 times since 1962, 10 of them since 2001. The most recent increase, to $14.294 trillion by H.J.Res. 45, was signed into law on February 12, 2010.
Taxes aren’t collected until after the annual budget is passed, so Congress can’t know in advance whether or how much additional borrowing will be required. Inevitably, there will be some years that the budget pushes the debt over the limit, requiring new legislation. And inevitably, now that this tactic has been discovered, there will be a costly battle over the increase, wasting congressional time, destabilizing markets, and rattling faith in the American financial and political systems. There will be continual blackmail, arm-twisting and concessions. The situation is untenable and cries out for a definitive resolution.
Fortunately, there is one. A bevy of legal scholars are recommending that the issue be eliminated altogether by playing the Constitutional trump card. The Fourteenth Amendment provides at Section 4:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Where statute and the Constitution collide, the Constitution prevails. Whether the government should pay the bills it has already incurred is not a matter of negotiation. It is a Constitutional mandate. And those are the bills we are talking about here, as President Obama stressed in his remarks on the issue last Friday. He said:
Raising the debt ceiling simply gives our country the ability to pay the bills that Congress has already racked up. I want to emphasize that. The debt ceiling does not determine how much more money we can spend, it simply authorizes us to pay the bills we already have racked up. It gives the United States of America the ability to keep its word.
Ignoring the debt ceiling on Constitutional grounds would not, as Michelle Bachmann declares, make President Obama a “dictator.” It would simply mean he is complying with his Constitutional mandate to pay the government’s bills on time and in full.
Social Security Is Not Welfare. It Is a Debt Due and Owing.
The President could have a clean resolution of the issue, but he is not jumping at the opportunity. Rather, he appears to be ready to throw Granny under the bus by slashing Social Security, Medicare and Medicaid, all in the name of “compromise.”
The Fourteenth Amendment says debts already incurred shall not be questioned, “including debts incurred for payment of pensions.” That includes Social Security, which is an “entitlement” in the true sense of the word: we’re entitled to it because we’ve already paid for it. In fact, the Social Security Act was originally sold to Congress and the nation in 1935 not as a government benefit, but as a retirement savings program. Earlier this year, the Urban Institute published a study evaluating the program in this way, concluding that the average worker who retires today will withdraw from Social Security just about the same amount he put in over the years, with a modest 2% real interest rate (after inflation).
A deal is a deal. We paid for it, we are owed it, and the U.S. government is good for it. To change the terms of the deal ex post facto is both a breach of contract and a violation of the Constitution.
Where to Get the Money: Ron Paul’s Creative Plan
A sovereign nation can always find the money to pay debts owed in its own currency. The U.S. could, if it wished, pay its bills using debt-free U.S. Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War. Alternatively, it could eliminate the deficit with Ron Paul’s plan, which amounts to the same thing. As Stephen Gandel explains Paul’s solution in Time Magazine:
In the last year or two the Fed has been buying up U.S. Treasury bonds in an effort to lower interest rates and boost the economy. The most recent round of that buying has been dubbed QE2, and has come under a good deal of criticism, though most economists agree that it was a generally helpful policy. The result is that the Fed now holds nearly $1.7 trillion in U.S. debt. But that is really phony debt. The Treasury pays the interest on the debt on behalf of the U.S. government to the Fed, which in turn returns 90 percent of the payments it gets back to the Treasury. Nonetheless, that $1.7 trillion in U.S. bonds that the Fed owns, despite the shell game of payments, is still counted in the debt ceiling number, which caps that amount of total federal debt at $14.3 trillion.
Paul's plan: Get the Fed and the Treasury to rip up that debt. It's fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed. A trillion and a half dollars is currently about what spending is expected to exceed tax revenue in 2011.
The biggest drawback to the plan, says Gandel, is just that it “looks bad.” It looks as if the government is paying off its debts by printing money. But that is what government-issued money is: a note acknowledging a debt due and owed from the public, good for an equivalent value from the public, traded in the marketplace. A U.S. Note or Greenback and a Federal Reserve Note or dollar bill are both forms of promissory notes. The government can as easily issue a dollar bill as a dollar note or a dollar bond, as Thomas Edison pointed out in the 1920s.
The objection to that solution is that it would be inflationary, but as economist Richard Koo graphically demonstrates, the Fed’s quantitative easing has had virtually no inflationary effect on the money supply to date:
Misdirected Fed policy has instead caused $1.6 trillion in “excess reserves” to sit on bank balance sheets, as explained in an earlier article. Conveniently, excess reserves can be used as collateral for futures and derivatives contracts, and that is what some banks appear to be doing with the money: backing trades in the financial markets. This sort of speculation, involving money making money without increasing productivity, can and does drive up prices.
If the money had been delivered directly to the government to be spent on the national budget, it might have gotten into the real economy where it could do some good. The government’s budget is spent not on speculation but on goods and services. Increased government “demand” stimulates an increase in “supply,” causing supply and demand to increase together, avoiding price inflation while stimulating economic activity.
Time to Close the Debt Ceiling Loophole
The debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers. The gamblers lost their bets and were bailed out at the expense of the taxpayers; and if anyone should be held to account, it is these gamblers.
The debt ceiling crisis is a manufactured one, engineered to extort concessions that will lock the middle class in debt peonage for decades to come. Congress is empowered by the Constitution to issue the money it needs to pay its debts. Abraham Lincoln did it; Barack Obama could do it. He probably won’t, but he does need to follow his Constitutional mandate to pay the government’s bills as and when due. The statute imposing a ceiling on the national debt is trumped by the Fourteenth Amendment, making it redundant and unnecessary. The statute should be repealed.
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how the power to create money has been usurped from the people, and how we can get it back. Her websites are http://webofdebt.com and http://ellenbrown.com.
Re: US Constitution Not a Suicide Pact:
posted at September 30, 2013 12:44 PM EDT