This first step should be followed up with subsequent steps that include government money creation in electronic form, i.e. US Money as well as US Notes. Our EMERGENCY US MONEY STIMULUS ACT of 2014 provides for the replacement of the $85-billion-per-month quantitative easing by the FED with a balanced increase in US Money issues. The quantitative-easing stimulus goes to the financial sector; in contrast, the US Money issues can be targeted at all of the budget items that have been cut by sequestration, as well as infrastructure projects, education, health, and safety-net expenditures. This will have a very positive effect on bringing unemployment down and pushing GDP growth up in a way that quantitative easing has failed to accomplish.
Additional elements of our longer-range plan include the creation of an independent Monetary Control Authority that would coordinate the various forms of money creation in such a way as to maintain CPI at nearly constant levels, something that historically the Fed has not been able to do. Eventually, US Money could comprise a very significant portion of the money supply, and its debt-free issuance would have saved the American people a great deal in their tax burden, since there is no interest charge for a debt-free issue.
Page Nine
Timothy Canova is a Professor of Law and Public Finance at Nova Southeastern University in Fort Lauderdale. He has practiced law on Wall Street, served as a Legislative Aide to the late Paul Tsongas, and served by appointment of Sen. Bernie Sanders on an advisory committee on Federal Reserve reform. An early critic of financial deregulation, he predicted and has lectured and written widely on the 2008 crisis through in The American Prospect, Dissent, and the New America Foundation, and published a chapter on New Deal Banking and Finance in an Oxford volume titled, When Government Helped: Learning from the Successes and Failures of the New Deal. His comment follows:
In 1999, a Republican Congressman from Illinois introduced a bill that would have authorized the Treasury Department to make up to $360 billion in interest-free loans ($72 billion a year for five years) to state and local governments for capital investments -- the kind of investments in critical infrastructure that are so needed today. The novel feature of the bill was how Treasury would finance the loans: not from tax revenues, not from borrowing, but from issuing the loans in the form of credits in United States Notes. Like the use of U.S. Notes in the past (such as the Civil War "greenback"), there would have been no cost to the Treasury or to U.S. taxpayers.
The Republican Congressman who introduced the greenback proposal in 1999 was Ray LaHood, who would become President Obama's first Transportation secretary. Perhaps President Obama should have appointed Mr. LaHood, instead of Timothy Geithner, to head the Treasury. The LaHood bill, which was influenced by Ken Bohnsack's "Sovereignty Loan Proposal," made good sense in 2009, and it makes even more sense today. See: https://www.govtrack.us/congress/bills/106/hr1452/text. The nation's infrastructure is fifteen years older and millions of Americans are out of work or underemployed, including a great many in the construction and building-trades industries. The American Society of Civil Engineers has given the U.S. a grade of D+ for our deteriorating infrastructure and has estimated that more than a trillion dollars in new investments are needed in the coming years.
As the Civil War experience suggests, Treasury-issued notes could be used for a number of purposes, from helping to pay government expenses, and thereby reducing the deficit, to actually paying down some of Treasury's outstanding debt. Lincoln used the greenback (about $450 million in U.S. Notes) to pay for necessary government expenses early in the Civil War without incurring unmanageable debt. At its peak, Lincoln's greenback made up about 40 percent of the nation's money supply during a time when the federal government was investing heavily in the nation's infrastructure, from canals to railroads.
Likewise, the Federal Reserve could initiate lending programs directly to small businesses, as it did throughout the 1930s. Or the Fed could purchase bonds issued by state infrastructure banks, much as the Fed has been purchasing trillions of dollars in bonds from Wall Street. Such strategies would not cost the central bank or the Treasury a penny, and would actually help reduce deficits by putting tax-paying resources back to work.
Nobel laureate economist Robert Shiller has estimated that the federal government could employ up to a million Americans in labor-intensive programs, such as a new Civilian Conservation Corps, at a cost of only $30 billion a year -- a small fraction of what the Federal Reserve has spent in purchasing bonds from Wall Street in its Quantitative Easing (QE) programs (and about half of what the Fed is presently spending each month in its latest QE program). The LaHood bill, or better yet, an expanded version, would allow state and local government to employ several million workers upgrading our roads, bridges, water works, sewage-treatment facilities, energy facilities, and other capital projects that enhance the quality of life for all of us. Meanwhile, the boost in employment would have important ripple effects, increasing effective demand for other goods and services, thereby strengthening the economy, and translating into increased tax revenues for governments at all levels. Such an approach proved highly successful for several decades, from the New Deal through the the post-World War II period, and ushered in today's high-tech economy.
Page Ten (Conclusion)
Some critics of a greenback approach will claim that it would be inflationary. Yet, by lending the newly issued U.S. Notes to state and local governments, the Treasury would be able to retire the Notes from circulation upon repayment. What is inflationary is the present approach to infrastructure finance in which state and local governments must borrow at significant interest rates, eventually repaying the principal and interest several times over. For instance, 25- and 30-year bonds issued by state and local governments under the Obama administration's Buy America Bonds program have yields exceeding 7 percent. At that rate, the borrower will end up repaying as much in interest every ten years as it originally borrowed in principal. Over the life of a 30-year Buy America Bond, state and local taxpayers will pay four times for their capital expenditures: once in principal and three times in interest. That approach creates crushing tax burdens that far exceed inflation rates while hampering the ability of governments to provide essential services, from schools to first responders. Meanwhile, the Build America Bonds program provides investors with a 35% bond-interest rebate from the Federal Government, at a cost of $50 billion a year to taxpayers, for investors who have enjoyed a nearly 40% appreciation in bond prices over the past four years.
Other critics will point out that the Treasury is already able to borrow at near zero interest, thanks to the Fed's easy monetary policy. But the yields on longer-term maturities are higher, in the neighborhood of 3.2 to 3.6 or higher on 20- and 30-year Treasury bonds. At those rates, Treasury debt effectively doubles about every twenty years.
The LaHood bill had nearly two-dozen co-sponsors from across the full range of the political spectrum. But it never made it out of committee. Instead, in 1999 and 2000 the Congress and Clinton administration were busy "modernizing" our financial industry by gutting what was left of the Glass-Steagall Act firewalls and deregulating financial derivatives, greatly increasing systematic risk and creating a casino economy that misallocated trillions of dollars in capital and has brought harm to millions of people who played by the rules. Compared with our present system of allocating resources and financing infrastructure, use of the greenback is just common sense.
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