FedUpUSA

Archive for December 19th, 2011

There are times that one looks to bad reporting as an accident, and then there are times when one has to call it what it appears to actually be — hacksterism:

The title over at EPJ is “Libertarian Party Greenbacker Alert” and the first actual sentence from Robert is:

Still is very confused about economics if he thinks the government can just print money (or what he calls “U.S. notes”) to pay off its debt, without causing serious inflation, if anyone would accept the notes in the first place.

Oh really?  As opposed to “borrowing” money you have no intention of ever repaying, nor any mathematical ability to pay?

Never mind that Robert doesn’t understand Bill’s position and didn’t bother to ask him first before publishing that nice little hit piece, nor did he reach out to anyone in the campaign committee (including me) who happens to know what his position actually is.  I would have been happy to explain it in as much detail as Robert would like (and so, I suspect, would Bill) and that offer remains on the table and has been communicated to Robert.

But let’s presume for a moment that the charge “as leveled” is true, although it’s not, and contrast it with what we’ve had for the last 30 years.  We’ll use my favorite chart again:

Borrowing money against nothing but the promise that the citizens will be wage slaves in the future in amounts that cannot possibly be paid along with escalating expenditures (e.g. Medical care in the US Federal Budget going up 9+% annually since 1980!) isn’t identical in form, substance and effect to unbacked emission of money in an uncontrolled fashion and thus doesn’t produce inflation?

The hell it’s not.  In fact it’s even worse — from a mechanical perspective what has been done is equivalent to issuing a naked short on the currency of the United States!

Evidence?  Right here:

That’s not inflation eh?  Hmmm… the actual peak was in roughly 2000, which would mean we actually saw about 14% inflation.  Then we rattled around for 10 more years trying to figure out how to prevent the deflation of that bubble through various forms of scams and frauds (Internet and housing bubble anyone?)

I can find plenty of other examples of course. You could look at debt in the system too – according to The Fed Z1 it was $4.4 trillion all-in — Federal, State, Local, personal, business, etc — in 1980.  Today it’s about $53 trillion, which happens to be about an 8.5% inflation rate annualized.

See, this is the problem with the BS and games — you don’t change the outcome, you just hide the ugly somewhere.  In this case where it was hidden was in a series of Ponzi-style economic bubbles.

If it walks like a duck and quacks like a duck it’s a duck.  In this case since money and credit spend the same monetary inflation has to be measured against money and credit in the system compared to output.  By that standard guess what — we’ve had lots of inflation.

This is the point and purpose of returning the money power to Congress, incidentally, beyond the Constitutional imperative.  The Ponzi games all come about because Congress wishes to overspend — that is, it wants to make political promises but it doesn’t want to pay for them by taxing someone.  To do that it must have someone under the current system to buy all of its new debt at an attractive price.  To do that the banksters must generate monetary velocity so that the pretty primary dealer network can absorb and then regurgitate out into the market the emission of debt paper that Treasury has to spew to fund the overspending.  Corporate America loves this too, at least in the short term, as the trade imbalance that this overspending and credit emission permits allows offshoring production as the capital that drains out of the country is replaced by credit money — not the same, but it spends the same and nobody’s the wiser — at least not up front.

Thus the handmaidens of The Fed, Congress and Wall Street all march along arm in arm patting each other on the back while the common man gets fleeced with Ponzi-style games and does not recognize what’s going on until all the jobs are gone, replaced by slave labor in China, housing prices are jacked to the moon and unpayable and fraudulent mortgages are the only way to “buy” a house.  Stock scams and schemes along with various derivatives products become the final orgy of leverage upon leverage — which is really, when you boil it all down, debt being issued to simply pay the interest on old debt.

In the long run of course this can never work and doesn’t — when the consumer is no longer able to take on more debt they collapse and then government steps in and borrows even more to make up the so-called “demand deficit” and the “monetary authority” (in this case The Fed) plays financial repression games to again prevent the market from revolting and calling down the curtain on the scam.  But there’s no stimulative effect that can come of this, since in order to actually make that stimulus “work” each dollar of additional deficit spending must generate roughly six of economic activity just to be tax-revenue neutral (assuming the government is about 18% of GDP.)  It never is, and thus the hole gets deeper and deeper until finally there is a revulsion for the debt of the nation involved and/or a sovereign default.

Suddenly the truth dawns on everyone at once — that wasn’t money that “filled the hole” in the budget and trade deficits — it was credit and while it spends the same it isn’t the same thing.  One is economic surplus from past labor and the other is a promise to perform labor tomorrow.  The problem of course is that it’s entirely possible — and not even difficult — to promise more than can be performed when tomorrow comes, and invariably that’s exactly what happens.

Oops.

That’s what’s happening in Greece and the rest of Europe and it is also what will come here if we don’t cut this crap out!

So what if Congress just emitted raw currency, as it is entitled to do under The Constitution?  Why then there would be immediate inflation, and the people would see the damage right up front.  There would be no Ponzi to be blown, as the people would have the harm “in their face” and shortly would, I’d expect, vote those critters out of office.  Heh, there goes the overspending!

Now which is the better system — the one that allows for myriad layers of lies and frauds, not to mention a couple of decades of screwing our youth and the unborn, or the one that exposes the harm immediately and thus has a very nice check and balance against it? 

I say the second. 

How about you?

This, however, is a vision for the future — in other words, it’s an endpoint.  For obvious reasons were we to simply pay off all the debt with issued money in one fell swoop the impact would be insanely disruptive.  But we don’t have to do that — there’s a better way.

Instead, the intent is to run a budgetary surplus, ending new borrowing immediately.  This will mean taking the hard decisions now while we still can instead of pretending we will never have to and that they won’t be imposed on us if we refuse to act on our own.  It is without question that doing so will lead to a short-term economic contraction, and as such repairing our trade, tax, immigration and energy policies along with fixing our medical system must occur at the same time to both blunt the blow where we can and position our nation for the future.

The debt will, in short, be paid down over time from tax receipts.  Until it is, Treasury will have the authority to roll over existing debt, but not issue new debt.  In other words, the budget will run an actual surplus.  To the extent the economy begins to grow once the base adjustment has been taken Treasury can (and will, under Congressional direction) use the privilege of seigniorage to issue currency (as US Notes) in the amount of the economic expansion less the productivity increase, if any.  Some of this will be used to retire more debt while the rest will be used for general spending (above tax revenues), as directed by Congress exactly as the founders intended and authorized in The Constitution.  Over time US Notes will replace Federal Reserve Notes in circulation and they will remain fungible through the transition.

Banks can lend against assets in the ordinary course of business provided the asset is worth more than the loan.  If it’s not they need to go acquire an asset — otherwise known as capital — from someone.  In short, banks should not be permitted to lend against nothing other than a bare promise, because that is inflationary and further it is not their privilege to effectively print money — that privilege belongs to the sovereign!  If a bank wishes to make an unsecured loan it must acquire the capital to be lent first (e.g. by selling stock or bonds in exchange for it.)

In the same vein the statistical data necessary to know where economic balance is with currency and credit must be exposed and calculated in full view of everyone so there are no distortions.  The CPI, in particular, has been ridiculously distorted through both Hedonic Adjustment and monstrosities such as “Owners Equivalent Rent.”  Good policy requires accurate statistics and the only means of stopping these intentional frauds is to expose the entirety of data collection, analysis and methodology to public view at all times.

This change will maintain the purchasing power of the dollar over time and permit the public to keep the benefit of productivity increase (after all, it’s labor that’s working, right?) in the form of a mild deflation — the expected and natural state of all economies.

The national debate over what we want our government to provide in services must be held, and for each of those programs, no matter what they are, we must pay current taxes to fund them, not promise labor to be performed by those not of age and not yet born.

Isn’t this a better view for America than serial ponzi schemes, bubbles and scams at all levels of government and private business?

I think it is, and those who argue otherwise — that the debt-backed system should be maintained — are the ones with the duty to show how the mathematics of exponents make what they propound possible to sustain in the intermediate and longer run.

If they can’t demonstrate sustainability through the hard science of mathematics then these charlatans and their economic claims and policies must be shown the door.

Most Americans have no idea that the U.S. government once issued debt-free money directly into circulation.  America once thrived under a debt-free monetary system, and we can do it again.  The truth is that the United States is a sovereign nation and it does not need to borrow money from anyone.  Back in the days of JFK, Federal Reserve Notes were not the only currency in circulation.  Under JFK (at at various other times), a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government without any new debt being created.  In fact, each bill said “United States Note” right at the top.  Unfortunately, United States Notes are not being issued today.  If you stop right now and pull a dollar out of your wallet, what does it say right at the top?  It says “Federal Reserve Note”.  Normally, the way our current system works is that whenever more Federal Reserve Notes are created more debt is also created.  This debt-based monetary system is systematically destroying the wealth of this nation.  But it does not have to be this way.  The truth is that the U.S. government still has the power under the U.S. Constitution to issue debt-free money, and we need to educate the American people about this.

Posted below are pictures of the front and the back of a United States Note printed in 1963 while JFK was president….

Notice that there is a red seal instead of a green seal on the front, and it says “United States Note” rather than “Federal Reserve Note”.

According to Wikipedia, United States Notes were issued directly into circulation by the U.S. Treasury and they were first used during the Civil War….

They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.

So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?

It seems rather stupid, doesn’t it?

Well, that is what Thomas Edison thought too.

Thomas Edison was once quoted in the New York Times as saying the following….

That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.

Our current debt-based monetary system was devised by greedy bankers that wanted to make huge profits by creating money out of thin air and lending it to the U.S. government at interest.

Sadly, the vast majority of the American people have no idea how money is actually created in this nation.

In a previous article about money and debt, I explained how more government debt is created whenever the U.S. government puts more money into circulation….

When the government wants more money, the U.S. government swaps U.S. Treasury bonds for “Federal Reserve notes”, thus creating more government debt.  Usually the money isn’t even printed up – most of the time it is just electronically credited to the government.  The Federal Reserve creates these “Federal Reserve notes” out of thin air.  These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.

When each new Federal Reserve Note is created, the interest owed by the federal government on that new Federal Reserve Note is not also created at the same time.

So the amount of government debt that is created actually exceeds the amount of money that is created.

Isn’t that a stupid system?

The U.S. Constitution says that the federal government is the one that should actually be issuing our money.

In particular, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

So why is a private central banking cartel issuing our money?

As is the case with so many other issues, we desperately need to get back to the way the U.S. Constitution says that we should be doing things.

The debt-based Federal Reserve system is literally stealing the future from our children and our grandchildren.

Back in 1910, a couple years prior to the passage of the Federal Reserve Act, the national debt was only about $2.6 billion.

A little over 100 years later, our national debt is now more than 5000 times larger.

So why don’t we just admit that this system simply does not work?

Our current debt-based monetary system also requires very high personal income taxes to pay for it.

In fact, it is no accident that the personal income tax was introduced at about the same time that the Federal Reserve system originally came into existence.

Our children, our grandchildren and many generations after that are facing a lifetime of debt slavery because of us.

As I have written about previously, if the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

Neither the Republicans or the Democrats are proposing any solutions to this problem.  Rather, both parties are only trying to slow down the rate at which we are going into even more debt.

But the truth is that the federal government does not have to go into a single penny of additional debt.

How could this be?

It is not too complicated.

If Congress took back the power over our currency and started issuing debt-free money a lot of our problems could be fixed.

A basic plan would look something like this….

#1) The U.S. Congress votes to take back all of the functions that it has delegated to the Federal Reserve and begins to issue debt-free United States Notes.  These United States Notes would have the exact same value as existing Federal Reserve Notes, and over time all existing Federal Reserve Notes would be taken out of circulation.

#2) The U.S. Congress nationalizes all debt held by the Federal Reserve.  That would instantly reduce the national debt by 1.6 trillion dollars.  In fact, there are a few members of Congress that have already proposed this.

#3) A Constitutional amendment is passed limiting future U.S. government deficits to a reasonable percentage of GDP.  Any future deficits would not be funded by borrowing.  Rather, future deficits would be funded by newly created Federal Reserve Notes.  Therefore, the federal government would never again accumulate another penny of debt.

And it would be important to inject new money into the economy from time to time.  When existing money is destroyed or when the population grows it is important to inject a certain amount of new money into the system in order to avoid deflation.

#4) The existing national debt would be very slowly paid off with newly created United States Notes.  The U.S. government spent over 454 billion dollars on interest on the national debt during fiscal year 2011, and over time this expense would go to zero.

If the national debt is paid off slowly enough, it would not create too much inflation.  I believe that it could be paid off gradually over 50 years without shocking the economy too much.

There are some that would object to any measure that would ever cause a small amount of inflation, but my contention is that we have created a $15 trillion dollar debt mess for future generations, and it would be absolutely criminal to pass that legacy on to them.

We created this mess, and it is our responsibility to clean it up.

While there is certainly a danger that we would have a limited amount of inflation under a debt-free monetary system such as the one described above, the reality is that we are absolutely guaranteed inflation under the Federal Reserve system.

Most Americans believe that inflation is a fact of life, but the sad truth is that the United States has only had a major, ongoing problem with inflation since the Federal Reserve was created back in 1913.

If you do not believe this, just check out this chart.

Sadly, the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created.

So, yes, there would be a need for strict monetary discipline under a debt-free monetary system, but it would be hard to do worse than the Federal Reserve has already been doing.

And Congress could always slow down inflation using other methods.  For example, raising the reserve requirements for banks (which should be done anyway) would help keep inflation in check.

If the above proposals were adopted, the end result would be something that we could all live with.  The Federal Reserve system would be abolished, the national debt burden on future generations would be wiped out, the economy would not have to go through a devastating economic collapse that could last a decade or longer, and we could eventually make a fairly smooth transition to “hard money” if we wanted to after the national debt is gone.

Is there any other proposal out there that does all of those things?

There are many out there that would dispute some of the points above, and debate is good.  By engaging in debate, we can hopefully help educate the American people about the nature of money.

The key is to get rid of our current debt-based Federal Reserve Notes and replace them with debt-free United States Notes.

The American people need to understand that it is a lie that the U.S. government “must” borrow money from somebody else.

When the U.S. government borrows money, it slowly transfers wealth from the American people to those that borrowed it.

At this point, we have created a financial nightmare for future generations that is unlike anything the world has ever seen before.  We owe it to future generations to eliminate the debt problem without destroying the United States economy.  Adopting debt-free money would allow us to do that.

But sadly, neither political party is even talking about debt-free money.  In fact, most of the politicians in both political parties probably do not even know what debt-free money is.

So we need to get the American people educated about these things.  Because if we stay on the course that we are currently on, an economic collapse is inevitable.

The Economic Collapse

NOTE:  YOU DO HAVE A CHOICE! Bill Still is absolutely talking about debt-free money.  It is the primary focus of his campaign!  Still2012.com