November 21st, 2011
in Op Ed
by Joseph M. Firestone, Ph.D, of Correntewire.
Joe is Managing Director and CEO of KMCI.org.
Dear Bernie, Today, you told the “Democrats stop caving in . . . ” to the interests of corporations, the tea party, wealthy individuals, and the Republicans in Congress. The only problem with your fiery statement is that you began it by “caving in” to them yourself. You did this by immediately legitimizing their frame of reference by saying:
“Here is something we all can agree on: Federal deficits are a serious problem.”
I'm sorry Bernie, we can't all agree on that, because it's just not true, and it's what the Republicans, the Blue Dogs, most Democrats and the Administration are all using to try to bully you and us into agreeing to spending cuts in key discretionary programs and programs like Social Security and Medicare, and also into not moving for more spending on jobs, better entitlement programs, including Medicare for All, and better discretionary programs we need to solve our many national problems.
The idea that Federal deficit spending is a serious problem is the idea, that along with the belief that the Federal debt is getting to be some kind of irresolvable problem, is in back of the whole anti-deficit/debt thrust of the deficit terrorists like Pete Peterson, David Walker, Alice Rivlin, and all the others in Washington including the President. In turn, this thrust has led to the Bowles-Simpson Catfood Commission, and the current so-called supercommittee that you've been fighting so hard 'lo these past months, and the constant drum beat that “There Is No Alternative” (TINA) to deficit cutting.
So, when are you going to learn that the only way for you and us to end this fight and to win it, is to deny their basic premises and particularly their foundational idea that the United States of America, the issuer of its own non-convertible floating fiat currency, with no external debt payable in anyone else's currency, and the ultimate source of all US Dollars existing in the world, can run out of the money needed to continue to deficit spend, and to pay all its bills including the principal and interest on all its debts, as well as all Congressional appropriations you and your colleagues may choose to legislate?
You say that the deficit is a serious problem. But I think it's not a real problem at all for at least three reasons that refute TINA.
--First, because nothing bad needs to happen if we continue to run deficits, as long as we don't do so after our economy is operating at full capacity. But we are very far from that state right now with between 25 – 30 million people wanting full time employment and not being able to get it. So, we can't have demand-pull inflation now. It's impossible.
-- Second, because it's the Congress that is constraining the Government from generating money for its debt repayment, or appropriated deficit spending using means other than taxing or borrowing, because Congress prohibits the Treasury from freely issuing Treasury Notes and also requires that it issue debt before it deficit spends, while at the same time imposing debt ceilings that interfere with borrowing to spend appropriations Congress has already made. So, there is no real problem because the constraints were made by Congress and can be lifted by it in a single afternoon, if it wants to.
There Is An Alternative (TIAA). And it is for Congress to stop requiring the Treasury to issue debt when it deficit spends, and to allow it instead to "mark up" its own accounts at the Fed when it needs to spend an already legislated Congressional appropriation, or to repay past debt and interest.
You should be making the truth of TIAA clear to the American people, Bernie, so that everyone knows that any shortage of money to spend is Congress's own fault, and that there is no debt/deficit problem in the sense of an inability to pay, or a need for China, Japan, or the bankers to lend the Government back the money the Government created in the first place, or a need to cut spending, or a need to raise taxes on anyone, or both, to avoid impending or future solvency.
But instead you're reinforcing their message that there is a serious deficit problem. Now that's what I call “loser liberalism,” Bernie.
-- And Third, there is no problem because even under current law, with its constraints on the Treasury's ability to spend what's required to repay debt or spend Congressional appropriations, it has been legal since 1996 for the Executive Branch to issue 1 oz. proof platinum coins having arbitrary face value in the amount of many Trillions of Dollars, deposit those coins at the Fed, and force the Fed to use its money-creating authority to credit Mint and Treasury Accounts with electronic credits equal to the value of the coin. The money placed in Treasury's accounts as a result of this action need not be spent. In fact, if the Executive minted a $60 T coin, then it could not all be spent because the authority for spending by the Treasury would not extend further than repayment of debt subject to the ceiling as it falls due, and payment implementing Congressional appropriations approved up to now.
So, even if such a coin were issued, spending by the end of the year would be limited to repayment of all intra-governmental debt, including all debt held by the Fed itself, and the Federal spending appropriated by Congress for the remainder of this calendar year. Most of the $60 Trillion would still remain unspent to be used for future debt repayment as the securities fall due, and payment for future Congressional appropriations that would not be covered by tax revenues.
As long as those appropriations don't outrun tax revenues more than is necessary to enable a full employment, full capacity utilization economy, no one has to worry about demand-pull inflation resulting from excessive Government spending. It won't happen. And if there is any inflation from other causes, which is possible, and even probable, if we don't prevent excessive commodity speculation through appropriate laws and their faithful enforcement, any cost-push inflation, won't have anything to do with Government spending.
You can find a more detailed explanation of this coin seigniorage idea and its implications here, here, here, and here. Without going into detail in this open letter, I'll just say that if the President uses coin seigniorage in the way I've outlined, he can fill the public purse with such a large volume of USD electronic credits that no one will be able to say, ever again, that the US has a deficit/debt problem because it is running out of money. And, additionally, in a very few years, the Treasury's payment of the Government's debts as they fall due, without any further debt issuance, to spend Congressional appropriations not covered by tax revenues or other sales, will result in most of the debt subject to the ceiling, except for long-term debt, being paid. There will be very low levels of debt subject to the ceiling and eventually no debt of this kind at all.
So, to summarize, it is not true that “. . . Federal deficits are a serious problem.” And it is not true that we have to do anything to reduce deficits defined as a gap between Federal spending and Federal tax revenues. The whole exercise in deficit reduction that the president and the other deficit terrorists have put this country through has been an immensely wasteful distraction.
As you say in your HuffPo piece:
“This is a pivotal moment in American history. The rich and large corporations are doing phenomenally well while the middle class is collapsing and poverty is increasing. Now is the time to answer the question that the Woody Guthrie song poignantly asked, "Which side are you on?" The Democrats must answer boldly that they are on the side of working families and the middle class and that they will fight to protect their interests.”
And you, Bernie, must also answer boldly with the truth. People who are on the side of working families and the middle class, like yourself, cannot continue to say that “we can all agree that there is a serious deficit problem”, because that has been the continuing most important element in the case the deficit terrorists are making.
To defend our ground, and the 99%, we need to deny and defeat that false framing. We cannot reinforce it! We need an alternative framing. And that framing is, the Federal Government needs no money from anyone to pay its debts and to spend what Congress has appropriated.
We are a fully sovereign nation, and as long at we retain that full sovereignty, including its fiscal aspects, the Government can spend/create any money it needs in accordance with the authority given to it by the Constitution of the United States. It is up to the Congress and to the Executive to use that authority as necessary to create and maintain full employment AND price stability, as well as all other aspects of the Public Purpose, as that purpose is defined and specified by the people of the United States of America.
Best, Joseph M. Firestone, Ph.D.
What if The Debt Ceiling is Not Raised? by Joseph M. Firestone
Coin Seigniorage: One Solution to Debt Ceiling by Joseph M. Firestone
Coin Seignorage and Inflation by Scott Fullwiler
Solve Debt Problems with Non-Debt Money by Derryl Hermanutz
Debt Ceiling Debate Only Kicks the Can Down the Road by Steven Hansen
USA Debt Crisis: Is There Any Truth by John Lounsbury and Steven Hansen