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OpEdNews Op Eds    H3'ed 7/16/11

Economic Reform Newsletter: A Way out of the Debt-Ceiling Default?

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Hello Fellow Economic Reformers:

Today's greetings come to you in big red letters because of the current debt-ceiling crisis that threatens to unravel our debt-repayment mechanisms, send interest rates soaring for both government and individuals, and destroy the AAA rating of the United States, possibly forever.  We have NEVER defaulted on our national debt, yet this is what the mostly clueless Tea-Party* inspired Republicans, and the mostly clueless, often spineless, Democrats intend to do to We, the American People.

But, perhaps I am being too harsh, because one Tea Party favorite, Ron Paul (6% approval) - though far less a favorite than Sara Palin (34% approval), perhaps because Paul supports ending all foreign wars, to the left of the Democrats - has a novel solution for curing 1.6 Trillion of the debt - simply write it off , as it is money we owe ourselves, if you believe that the Federal Reserve is essentially a government agency and that money America owes to it, is money it owes itself.  Dean Baker writes about the proposal here and there is a fine, if truncated, video about it here.  The article accompanying the video asks:

"Is it a government bank or a banker's bank or, as I (Perry G. Mehrling) would argue, a hybrid of the two?
If you think of the Fed as a government bank, then you think of the liabilities of the Fed, cash and reserves, as essentially the same kind of thing as Treasury bills, just paying lower interest.  The fact that the Fed holds Treasury bills as an asset has no economic importance; it is just a matter of intra-governmental accounting.  The fact that the Fed pays its net profits every year to the Treasury, most of those profits arising from the fact that Fed liabilities pay lower interest than Treasury liabilities, shows you that the Fed is essentially a way of providing the government with a cheap form of finance."

What's wrong with that? Mehrling says:

"I think markets would probably appreciate that the Fed's liabilities are in fact backed by the Treasury, even if the actual Treasury securities were no longer in the Fed's vaults.  ... Implicit off-balance sheet backing would thus replace explicit on-balance sheet backing, a step backward in transparency, but otherwise not much economic effect."

This would do something else Mehrling is perhaps unaware of - it would guide the country much closer to a true understanding of the Money System, as promulgated by movies like The Money Masters and Stephen Zarlenga; namely that money is a legal creation of a Federal Government , whose value is determined by the quantity of it.   Is this too radical a notion to allow to seep out to the American public?  Time, but not much time, since there is a August 2 debt drop-dead deadline, will tell.  After August 2, and perhaps before, American's credit rating will be slashed, Social Security checks will stop going out and military personnel will stop being paid, unless a law is passed exempting them, among many, many, other bad things, some of which cannot be unwound even IF the Congress comes to its senses.

Now, of course, we who have studied George know that lowering the debt will just mean more debt in the future as the Landowner "takes all that remains."  And cutting entitlements will only make some less able to pay the Landowner, while others will still be paying "all that remains."  Still, the crisis is NOW, and we will not get a Georgist solution in the next two weeks, so something must be done .

* People who align themselves with Tea Party goals represent just 28% of those surveyed in a USA Today/Gallup poll conducted in March 2010, 26% were opponents, and 46% were neither. [ 176 ]   A CBS News/New York Times poll in September 2010, in sharp contrast, showed 19% of respondents supported the movement, 63% did not, and 16% said they did not know.  In the same poll, 29% had an unfavorable view of the Tea Party, compared to 23% with a favorable view. [ 178 ] The Center for American Progress, a progressive group, used this poll to assert that the Tea Party movement holds views that differ from those the general public.  Indeed. 
A further study by the Center shows that:
...the electorate is broken down using a more expansive five-point scale of political ideology that reflects the variety of approaches people ascribe to today. Employing this more calibrated measure, 34 percent of the country identifies as "conservative," 29 percent as "moderate," 15 percent as "liberal," 16 percent as "progressive," and 2 percent as "libertarian."
Well, most Progressives I know have mostly Liberal values, albeit somewhat more novel solutions to them than traditional Liberals, so a case could be made to add the 15% Liberal and 16% Progressive together, at least partly, to get 31% on the "Left" in some fashion.  That would be more than either poll above rates the Tea Party.  Other, previous, studies, show that these breakdowns have remained remarkably consistent throughout the past 2 decades.  Could the recent "rightward-tilt" of the American people be another fiction created by the Mass Media?  Naw, that would mean the Mass Media was corrupt, and biased.

Something Must Be done

I recently met an activist during a trip to Madrid in the newly formed M15 (May 15), aka Tomaplaza, Movement.  Here in the States, most people probably don't know what that is, but let 650,000+ participants enlighten you with their presence on 859 places on this map!  This movement, begun in Spain, but emblematic of the "Facebook revolution" with sophisticated websites everywhere, is going viral, worldwide.  With Spain's 45% youth unemployment, and 22% overall, it is no wonder!   Now, the mass media here likes to portray the failure to employ such vast numbers of people as "structural" and a result of spoiled European socialist policies, but the truth is much more nuanced and complex, and simply different, than that.  Spain, like America, experienced a housing bubble (unlike America, however, they are part of the EU, severely limiting their ability to respond with QE-type easing, which often went from the U.S. to overseas to prop up foreign banks.  Nor can Spain establish other solutions, like State Banking):

"The 2008--2011 Spanish financial crisis is part of the world Late-2000s financial crisis. In Spain, the crisis was generated by long term loans (commonly issued for 40 years), the building market crash which included the bankruptcy of major companies, and a particularly severe increase in unemployment, which rose to 13.9% in February 2009.
Spain continued the path of economic growth when the ruling party changed in 2004, keeping robust GDP growth during the first term of prime minister Josà Luis Rodrà guez Zapatero, even though some fundamental problems in the Spanish economy were already evident. Among these, according to the Financial Times, there was Spain's huge trade deficit (which reached a staggering 10% of the country's GDP by the summer of 2008), [ 1 ] the "loss of competitiveness against its main trading partners" and, also, as a part of the latter, an inflation rate which had been traditionally higher than those of its European partners, back then especially affected by house price increases of 150% from 1998 and a growing family indebtedness (115%) chiefly related to the Spanish Real Estate boom and rocketing oil prices. [ 2 ]
The Spanish government official GDP growth forecast for 2008 in April was 2.3%. This figure was successively revised down by the Spanish Ministry of Economy to 1.6. [ 3 ] This figure looked better than those of most other developed countries. In reality, this rate effectively represented stagnant GDP per person due to Spain's high population growth, itself the result of a then continuing strong level of immigration. Currently most independent forecasters estimate that the rate was actually around 0.8% instead, [ 4 ] far below the strong 3% plus GDP annual growth rates during the 1997-2007 decade. Then, during the third quarter of 2008 the national GDP contracted for the first time in 15 years and, in February 2009, it was confirmed that Spain, along other European economies, had officially entered recession. [ 5 ]
In July 2009, the IMF worsened the estimates for Spain's 2009 contraction, to minus 4% of GDP for the year (close to the European average of minus 4.6%), besides, it estimated a further 0.8% contraction of the Spanish economy for 2010, the worst prospect amid advanced economies. [ 6 ]"

I quoted Wiki at length to give some background, but of course, they, like every other mainstream source, fail to grasp the flawed economics that led to the bubble and the crash.  Since "Man seeks to satisfy his desires with the least amount of effort," as Henry George told us over a hundred and thirty years ago, it's no wonder that in a credit-easy environment like Spain, and America, enjoyed until 2008, people would see to flip houses rather than work for a living, and big banks would enable them (hence, the uncompetitiveness cited above, and inflation driven by raw commodities like oil (which, under a Georgist system, would also be taxed at the wellhead, leaving producers to collect above the wellhead)).  
But, we are where we are, both in Spain (which I will be writing more about in the future), and in the world.  What is to be done is no longer a question just from mostly forgotten Vladimir Ilyich Lenin, it is a question burning the minds of the M15 movement, and perhaps very soon, many more Americans as well (who would have thought a forgettable fruit seller would have sparked the "Arab Spring?"  It doesn't take much of a spark to ignite a smouldering movement).  Are you ready for giant tents erected in your town square, and the mass protests on a near weekly basis (look for a worldwide protest M15 October 15th, my source tells me)?  Feudalism looks better to those looking comfortably out of the castle than to those outside, without even Land to toil.  The people are revolting! (OK, I couldn't resist that classic Mel Brooks clip, but the truth is not so funny...)

As my friend and Georgist Common Ground colleague likes to say, "You're either seated at the table, or you're on the menu." 

Well, we at Common Ground-NYC are tired of being on the menu, and we want to be part of the voice for REAL change that we can believe in. 
Stay tuned for some major new initiatives this Fall.  They won't be easy, and unfortunately, they won't be quick (can the world wait?), but they are necessary.

In the meantime, 14 states have Public Banking Bills, partly in an effort to circumvent reserve-rich banks who collect interest from the Federal Reserve instead of  lending, and recall efforts are underway for many of Wisconsin's legislators (so much for the unstoppable rightward train), despite the fact that, as former president Bill Clinton put it:
"There has never been in my lifetime, since we got rid of the poll tax and all the other Jim Crow burdens on voting, the determined effort to limit the franchise that we see today,"
...including Wisconsin Governor Scott Walkers' voter ID act. 
Oh yes, we need voting reform too, but not in the form of disenfranchisement.  Some democracy....

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Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a former blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:

Scott is a former and current President of Common Ground-NY (http://commongroundnyc.org/), a Geoist/Georgist activist group. He has written dozens of (more...)

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