Eliot Spitzer on May 29, 2012 declared:
“Let’s debunk one of the central myths about President Obama being spread by Mitt Romney. The myth is that this president has boosted spending at a voracious rate and led a renaissance of big government. It’s a claim that Mitt Romney is trumpeting on his campaign website and talks about all the time. Except it’s false — and incontrovertible numbers back us up.”
May 15, 2012 –– A Blog by The Just Third Way entitled: “The Global Debt Crisis, VII: Permanent Deficit Financing posted by Michael D. Greaney:
If Keynesian economic analysis is correct, the size of the outstanding debt is nothing to worry about. Government debt is an asset. By emitting bills of credit backed by its own “faith and credit,” the government increases wealth. For example, when people pay cash money into the Social Security Trust Fund, the Trustees prudently turn right around and purchase government bonds instead of holding on to sterile cash or throwing it away by buying worthless private sector securities with nothing behind them but the present value of existing and future marketable goods and services.
By this reckoning Social Security is fully funded for a decade or so. Even if the Trust Fund runs out of money, the government can bail it out, which it can do by creating more wealth, i.e., issuing more bonds to deposit into the Trust Fund, which can then be redeemed for cash by selling them on the open market to the Federal Reserve.
Obviously, there is something wrong with the Keynesian analysis. If government securities backed only by the faith and credit of the issuer are real wealth, every nation on earth would be richer than Croesus. Pick up the newspaper or watch the news, however, and most of the space and time is taken up with the fact that many governments have issued so many securities that there’s no way they can conceivably make good on the promises they’ve made, at least within the current framework.
A large part of the problem is due to bad ideas about money and credit — and debt. Under Keynesian assumptions, all that’s happening when a government emits bills of credit instead of borrowing money out of existing savings is that existing wealth (on which the State has a general claim through its ability to tax) is divided into smaller and smaller pieces.
With more money around, however, the price level starts to rise — inflation, or more units of currency “chasing” the same amount of goods and services. Since wages in general are reactive and rise more slowly than the price level, people who subsist on wage income alone are forced to reduce consumption. Only the fact that new jobs are created in aggregate in response to the transfers of purchasing power caused by unilateral government redistribution through inflation keeps up consumption — and then only so long as private companies use their profits to hire more workers, the government subsidizes hiring or hires people directly, or consumers can go into debt to purchase consumption goods and services.
This is because — according to Keynes — the only way to save is to reduce consumption and accumulate cash. This is, in fact, how Keynes defines savings: reductions in consumption. By inflating the currency and raising the price level, consumption is reduced below what it would otherwise be, but those reducing consumption do not receive the benefit of the “savings.” Instead, there is a transfer of purchasing power to producers, who benefit at the expense of the wage workers. These “forced savings” are invested in new capital formation, creating jobs. Keynesian monetary theory is designed to benefit the wealthy at the expense of the poor.
The concept of “forced savings” is also the source of the Keynesian belief that there is a necessary tradeoff between inflation and unemployment. The idea is that without inflation you cannot create jobs (at least according to Keynes), but wage workers continually lose purchasing power the more money there is, and thus (presumably) the more jobs there are. If the system works the way Keynes said it does, there are more jobs, but wages become worth progressively less.
To make up for the loss in purchasing power that consumer borrowing doesn’t cover, the government prints more money. This in turn allegedly creates more jobs as demand increases. The cycle can go on forever and debt increase without any danger. As Harold Moulton summarized the Keynesian theory in the passage we quoted previously in this series (and again here to save your having to hunt for it),
“The proponents of the philosophy that the only hope for full employment and continuing prosperity lies in permanent deficit financing recognize, of course, that this means a continuous expansion of the public debt. The economic implications of an ever-expanding public debt are, moreover, given consideration. We are advised that an internal public debt is not a menace and that we should not be ‘intimidated’ by it. ‘On the contrary, instead of looking upon [it] with the sort of awe that was inspired by our savage ancestors by some incomprehensible phenomenon such as lightning, we must take a leaf out of the book of modern science. . . . It is, in fact, so different from what we commonly think of as debt . . . that it should scarcely be called debt at all.’ An internal public debt ‘has none of the essential earmarks of a private debt’.” (The New Philosophy of Public Debt, op. cit., 49-50.)
Ancient science, philosophy and the common sense of primitive people all tell us that a debt is a debt — a promise is a promise — and must be kept. Contracts (another word for promise, as is “covenant”) are so sacred that you call upon the gods to witness that you mean what you say, and to ensure that you will keep your word . . . with a cosmic “or else” hanging over you. Oath breakers don’t fare well in the mythology of any people.
Some traditions view trickery in getting out of a promise with admiration. The key to getting along is to phrase your promise exactly right so that you leave no loopholes. Even this, however, is a manifestation of the sacredness of the promise itself. Once it is crystal clear what the promise is to all parties, it had better be kept — or else.
This can get irritating to people who put the spirit of the law above the letter, or to those who base the natural law on God’s Nature, self-realized in his intellect. “Modern science,” however, is equal to the task. As Arthur C. Clarke once claimed, any sufficiently advanced science is indistinguishable from magic. Nowhere is this more true than in the “Modern Monetary Theory” embraced by Keynesian economics. Since “MMT” is “modern science” (or at least claims to be), assertion is sufficient to justify the basic premises. If the basic premises, per ancient science, philosophy or primitive common sense, are shown to be untenable, that’s only because you don’t understand such controversial or complex matters. You only think it doesn’t make sense because you’re a primitive savage.
Or not. It might be that the Keynesians and others who claim that others just don’t understand might be a little shaky themselves on the basics — especially money and credit, banking, finance, and law.
http://just3rdway.blogspot.com/2012/05/global-debt-crisis-vii-permanent.html
On May 19, 2012, Dylan Matthews posts on Ezra Klein’s Wonkblog:
“‘Modern Monetary Theory’ was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In ‘A Treatise On Money,’ Keynes asserted that ‘all modern States’ have had the ability to decide what is money and what is not for at least 4,000 years.
“This claim, that money is a “creature of the state,” is central to the theory. In a “fiat money” system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.
“This doesn’t mean that taxes are unnecessary. Taxes, in fact, are key to making the whole system work. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.
“But if the theory is correct, there is no reason the amount of money the government takes in needs to match up with the amount it spends. Indeed, its followers call for massive tax cuts and deficit spending during recessions.
The proper role of monetary policy should be to broaden private, individual ownership our business corporations and companies, who exponentially replace labor or degrade labor’s input replace by the non-human factor of production––machines, superautomation, robotics, digital computerized operations, etc.––and hoard the future ownership of the productive capital assets the non-human factor represents. See http://www.cesj.org/about/programs/declarations/monetaryjustice.htm
Coalition For Capital Homesteading
DECLARATION OF MONETARY JUSTICE
Whereas, the United States economy is today plagued by a growing gap between the rich and the non-rich; by a global recession and credit crisis; by debilitating waste and under-employment of human talent; by inadequate growth alongside shackled technological potential; by record-level trade and governmental budget deficits; and by an estimated “hidden debt” of $56.4 trillion (or $483,000 per household)* in future Social Security and Medicare entitlements, added to historically high Federal debt being imposed on young Americans and generations not yet born; and
Whereas, the sustainable growth and energy self-sufficiency of the American economy in the Twenty-First Century will require trillions of dollars each year of new and improved, life-enhancing technology, rentable space and physical infrastructure; and
Whereas, the Joint Economic Committee of Congress, as early as 1977, has declared broad-based ownership of new capital as an effective strategy for raising national productivity; and
Whereas, the national goal of equal economic opportunity has been blocked by artificial barriers to widespread capital ownership; and
Whereas, this policy objective has been frustrated by the systemic concentration of economic power and exclusionary access to future capital credit to the advantage of the wealthiest Americans; and
Whereas, the Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy, by monetizing public-sector growth and mounting Federal deficits and bailouts of mortgage loan sharks and their Wall Street syndicators; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers and workers; by increasing the dependency of families by burdening them with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings; and
Whereas, there is a fundamental difference between asset-backed credit for productive uses and debt-backed credit for non-productive uses, consumption or speculation; the first being critical for stimulating private sector investment, savings and the supply of new marketable wealth, and the second being used to give people more inflated dollars to chase the same supply of existing wealth; and
Whereas, the Federal Reserve Board is now empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive and speculative uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship;
Now, Therefore, Be It Resolved, that the Congress amend the Federal Reserve Act (1) to require the Federal Reserve Board to stop monetizing government debt through its buying and selling of U.S. Treasury securities, (2) to begin re-activating its discount mechanism to encourage private sector growth linked to expanded ownership opportunities for all Americans, and (3) to provide a lifetime ownership share in each regional Federal Reserve bank to every citizen as a fundamental right of citizenship.
To This End, we hereby petition the Federal Reserve Board to adopt a two-tiered money-creation and credit policy that sharply distinguishes between ownership-expanding, productive credit, and ownership-concentrating, non-productive and speculative uses of credit. The upper tier, reflecting the higher market costs of borrowing “old money” from existing domestic and foreign savings pools and existing assets, should continue to be maintained as a source of market-rate credit to public-sector borrowers, consumers, speculators, and for all other non-productive purposes. The Federal Reserve discount rate for the lower tier should be reduced to no higher than 0.5 percent as a one-time “service fee” for creating interest-free “new money” backed by sustainable, non-inflationary and broadly owned growth.
This new reservoir of Federal Reserve monetized credit should be reserved exclusively for commercial bank members of the Federal Reserve System to the extent they in turn make available in equal periodic allotments to every citizen through “Capital Homestead Accounts” (Special IRAs) direct access to capital credit at reasonable service charges and risk premiums, with prime rates set by market forces above the Fed discount rate to its member banks. Such expanded bank credit should not be subsidized by the taxpayers, and should be backed and collateralized by the newly acquired assets and private sector credit insurance to cover the risk of default.
Such ownership-broadening capital credit borrowed through local banks at the lower tier rates could be invested in “qualified” securities such as newly issued, full-dividend payout, full voting shares in a company for which a member of the citizen’s household works; companies in which the citizen’s household has a monthly billing account; for-profit Citizens Land Banks/Cooperatives/Corporations organized for large-scale local land and infrastructural development; Employee Stock Ownership Plans; Homeowners Equity Corporations for turning renters into owners; production and marketing cooperatives and partnerships; family-owned and -operated businesses and farms; and mature companies with a history of solid earnings; and
Be It Further Resolved, that a copy of this Declaration of Monetary Justice be sent to the President and to members of Congress and the Board of Governors of the Federal Reserve System.
