The Great Austerity Swindle!

By Joe Firestone

Our Congresspeople, corporate CEOs, tea partiers, most economists, Pete Peterson’s minions, and even our President, tell us that we’re running out of money; and that if we can’t keep running huge deficits, and increasing our national debt forever, because eventually, our creditors will just cease lending us our dollars back.

They also tell us that the Government can only raise money by either taxing or borrowing, and that when it comes to taxing, we can’t tax “the job creators” very much or they’ll go on strike and won’t create any jobs because we’ll have killed their incentive. So, here we are, we have to reduce our borrowing, and we can have hardly any tax increases on “the job creators,” so what’s a fiscally responsible nation to do?

Well, they say, clearly “we” have to lower taxes on “the job creators” even more, raise them on the “unproductive” 47% or is it the 99%? And also, cut spending substantially on programs that provide benefits for the poor, the middle class, and even the 99%, so we can “. . . live within our means,” and remove the burden of excessive public debt on our grandchildren.

But, what if we say to these people, well, “the job creators” aren’t making any jobs? That’s a fact! They give all kinds of excuses, but the truth is that they have no sales, so they have no incentive to create any more jobs.

On the other hand, the more we lower their taxes, the more money they have sitting idle, and the more they have an incentive to use that money to invest  in financial manipulation schemes rather than jobs. So, why not tax them at extremely high rates on net profits and provide them an incentive to lower their net profits by spending more of their gross profits on tax-deductible business expenses like employees and business expansion? Why won’t high taxes on them do more to create jobs than lower taxes? Didn’t we have far lower unemployment rates when marginal tax rates were sky-high, than we have now when they are a pittance on the wealthy?

And what if we say to them, well, Congress can always reorganize the Federal Reserve so that the regional Fed Banks are nationalized and both they and the Board of Governors are placed under the authority of the Secretary of the Treasury, so that the Secretary is empowered to create reserves out of thin air to fill the Treasury’s spending account, and keep it filled with sufficient funds to repay the national debt and cover the deficit without borrowing? And what if we tell them further, that we know that Congress has the Constitutional authority to do this? And what if we ask them, why doesn’t it do this, and get the national debt that you, our leaders, are so worried about, paid off, and keep us debt free? And what if we ask them still further, and if you do this then why would we have to have any spending cuts or tax increases, at all?

And what if we say to them, we also know that to pay off the national debt and cover the deficits for years to come; it isn’t even necessary for Congress to reorganize the Fed, because the Treasury can use the Fed to create money in Treasury’s account from seigniorage? What if we say to them that all that’s necessary is for the President to mint a High Value Platinum Coin (HVPC) with a face value of $60 Trillion dollars, deposit it at the Fed, and then begin to pay off the national debt and implement deficit spending using the electronic credits created in the process of seigniorage?

And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing because Congress can modify the laws, as just described, so Treasury can generate US money out of thin air, just as the Fed does today, that Treasury can use to pay down the debt and cover deficit spending

And what if we say to them, we know that you’ll say that this is “printing money” and will cause inflation? But what if we then say, sorry, but we know very well that it will not cause inflation; because reserves issued unaccompanied by debt are no more inflationary than reserves issued along with debt and, most importantly, we also know that if you legislate the ability for Treasury to do this, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore?

And what if we say to them, we also know that it is a myth that the Federal Government can only get money for spending from taxing or borrowing, because the President can use Platinum Coin Seigniorage (PCS) to harness the power of the Fed to generate reserves that end up in the Treasury General Account (TGA), and Treasury can then use the reserves to pay down the debt and cover deficit spending?

And what if we say to them, we also know that this won’t cause inflation for reasons stated above, and, most importantly, we also know that if Treasury does this on orders of the President, then you won’t have to worry about the deficit and debt or our grand children anymore; and we won’t have to worry about your cutting safety net and other necessary programs anymore either?

And what if we tell them that, for all the reasons indicated in these questions, we also know that all your reasons for wanting to reduce the deficit and impose austerity on the 99% are bogus? We don’t know which of you believe in these reasons and which of you do not. But this isn’t as important as it seems, because we know that the debt commissions, the debt ceiling crises, the fiscal cliff, the sequestration, the continuing resolution, budgetary crises, and the  constant propaganda campaign from all of you directed at all of us, is a grand “shock doctrine” process attempting to swindle us out of a government that works for 99% of us rather than the 1%. We know that “the Grand Bargain” is “the Great Betrayal”!  And we won’t have it!

21 Responses to The Great Austerity Swindle!

  1. What if we just tell them as a matter of plain historical fact that we know that they are selectively applying the fiat basis of creating currency units when it suits their presumed societal position, and then apply a different and debt based standard when it serves their presumed feudal entitlements to enslave by debt the actually productive portions of the citizenry. And that by the same means of simple observation we recognize that the political class has come to serve this agenda as courtiers and shills so that they personally might share by having a plate at the “house” servants dining upon a better fare of crumbs from the main table of greed. At each point in history where the actually productive classes made a gain to serve the 99%, the strategy has been to restore the social order was based upon a divide and bleed to conquer strategy. Such “institutionalists” as define the Washington consensus will always present a Wilson, Hoover, Truman, Reagan, Clinton or Obama to impose the pretense of a consensus and responsibility where none exists. Every redirecting of policies toward “social order and society stability” has been won through struggle and recognition of the control fraud from the top. Given enough truth speaking educators at the local level people can recognize the fraud. That Elinor Ostrom received a less than noble prize, for something as ordinary recognition of the capacity of commoners to organize and sustain a culture of the commons, is less a detraction for her work than an obscuring of the efforts to erase the history of sustaining a science of commoning.

  2. Jjohn W Mitchell

    Well said! more people need to know this information and share it.

  3. the “fed” is 100 years old and has repeatedly swindled the country and inflated the currency, til it’s barely worth a literal “2-cents”, so it’s time to stop them in their tracks and return to the government issued money with NO DEBT as did Ben Franklin, Abe Lincoln, and JFK to not only pay off their usurious, immoral, and unConstitutional “debt”, but honor the country that history will always regard as the most prosperous ever devised. There are so many abuses and scandals perpetrated by these same NWO types, like D. Rockefeller, etal. of Chase Bank, Citi group, etal. that it’s a wonder that our country survives at all, like their “QE program”, which obviously creates huge sums out of thin air, dishonoring the work ethic, entrepreneurialship, inventiveness and our very liberties as the Constitution is frittered away toward a future for us of serfdom….which is worse than slavery, as with slaves, you must feed and quarter them. With serfs, you use them, then throw them away like toilet paper….and take their guns first of course like EVERY other dictatorial scheme has done. The so-called “national” debt is but a contrivance of the super-rich to impoverish “we the (little) people”.

    • QE is nothing of the sort.

    • Great points by the doctor, and to add several mor to Dr. LaMar’s outstanding commentary,

      …tell us that we’re running out of money..

      Which might explain why they, the super-rich, have been moving their funds offshore, both from America and other countries, over the past decade or so (global equity-centralizing).

      Which may further explain why the IMF’s Edgemont Group established all those Financial Intelligence Units (FIU), ostensibly to monitor international money laundering (and what we believed was to control int’l money laundering, but that really turns out to be just a subset) but in reality for purposes of global equity-centralizing of the super-rich’s funds.

      Of course, since those hedge funds shorted so many small public companies out of business (over 7,000 according to a class action suit brought against the DTCC back around 2005 to 2007), and then they financed congressional legislation a few years back, giving small business loan preference to those comapnies already invested in by hedge funds or private equity funds, it appears a monopoly by design is in the works!

  4. This is a good one, Joe.

  5. Thanks Joe for asking the questions, again. I think the answers are that MMTers have been asking these questions over and over in as many forums as possible and they have been met either with ridicule or gasps of fear by those who believe the propaganda put out by the Pete Peterson minions, the MSM and the neo-liberal economists. Most of the 99% have a hard time grasping the concept that the US budget is not constrained by income limits as is their own or even their states. That’s why the HVPCS could be such a game changer if it were adopted.
    One question I have is, when people object or state that, “we must live within our means” would it be helpful to say, “yes, we must live within our means, but our means are different form a families because…” and then go on to explain how a sovereign issuer of currency is able to create fiat money? This may be a subtle distinction, but it does validate the questioner’s perception at least in regard to his/her own family and perhaps opens the door to looking at government in a different light. Just a thought.

    • I think that’s a good reply, Sun. I’d emphasize that unlike their family the “means” we have to live within aren’t financial because the Government can create its own currency. But they are real. We only have so much in resources, capital, and human skill and effort we can use to create the things, conditions, and processes we value. Those are real wealth. To make that real wealth we have to use all the financial resources we can create to help us. And that’s what the Government can do, if we demand it from them!

      • Thanks for responding Joe. After this post I read Stephanie Kelton’s comments on this issue and she made basically the same point about means and real assets. For those open to the ideas, this seems to be good approach. For those frozen in neo-liberal theory, perhaps global warming is the only hope.

  6. raise them on the “unproductive” 47%
    ___

    Uhhhh.h.h… if these people are ostensibly “unproductive,” well…

    Never mind.

  7. Alex Seferian

    “…reserves issued unaccompanied by debt are no more inflationary than reserves issued along with debt…”

    I have some doubts about this statement.

    Whenever the US Government deficit-spends and the Fed, creating reserves, takes on the underlying Treasury securities that were in a first instance sold to the Primary Dealers (PDs), Net Financial Assets (NFAs) are created, or “vertical money”. The Fed, an institution controlled by Congress, holds the asset linked to the public loan, and so the public sector ends up owing itself. In this case, the US Government acted not like a household when it borrowed, but as a sovereign state by creating fiat money… albeit in a convoluted way and indirectly via the PDs.

    However, when the underlying Treasury securities stay on the books of the private banks, vertical money is not created. Debt that is not on public books is on private books, and the Government eventually has to repay the private bondholders. This situation is no different to one in which a household borrows money (unless eventually the public sector does extinguish the debt with “vertical money”).

    In a world where there are rules designed to maximize the amount of “Private Bank Deposit Money” and minimize the amount of “Fed Money” in circulation (i.e., in a world where most of the Treasury debt stays on the books of the private banks), the intention is that eventually the Government repay its debts to the private sector banks through taxes… meaning a reduction in NFAs down the road and to offset the initial increase in NFAs brought about by the original deficit-expenditure.

    It seems to be that the rules are set up the way they are to purposely limit the US Government’s ability to create “vertical money”; given inflation fears and a lack of understanding of MMT, and for the benefit of the private banks of course.

    The Quantity Theory of Money is not the way things work because the assumptions related to the variables are clearly wrong. Moreover, its clear that the risk of inflationary pressures is indirectly related to the level of capacity underutilization in an economy. However, the formula MV = PQ is a tautology, and money and prices do tend to move in the same direction the moment they are at opposite sides of the equation.

    So… back to the above statement. It seems to me that in the long-run, and in the very special case of the US, reserves issued with private sector debt tend to generate less money in the economy (given the preference the US Government has to eventually “tax back” the NFAs), and therefore less inflationary pressures, relative to a situation where the government just created public money with no debt whatsoever, and was allowed to spend it. I think that PCS makes a lot of sense, but unless I am getting my double-entry accounting wrong, the quoted statement above could be reworded to read: “…reserves issued unaccompanied by any debt whatsoever, tend to be in the long-run more inflationary than reserves issued along with private bank debt…”

    • Hi Alex,

      The Quantity Theory of Money is not the way things work because the assumptions related to the variables are clearly wrong. Moreover, its clear that the risk of inflationary pressures is indirectly related to the level of capacity underutilization in an economy. However, the formula MV = PQ is a tautology, and money and prices do tend to move in the same direction the moment they are at opposite sides of the equation.

      The fact that QTOM is tautology isn’t a strength, it’s a weakness, because it means that this equation must be interpreted with measurement rules to connect to data and then tested against what we’ll accept as key data. Such tests, unlike those of the sectoral financial balances model, do not end happily for QTOM. It is refuted by data, and I think that is the end of the story. Your last qualifying remark doesn’t really save QTOM, because it just doesn’t either explain or predict what happens when reserves are net added to the system, as opposed to what happens when you net add debt instruments to the system.

      So… back to the above statement. It seems to me that in the long-run, and in the very special case of the US, reserves issued with private sector debt tend to generate less money in the economy (given the preference the US Government has to eventually “tax back” the NFAs), and therefore less inflationary pressures, relative to a situation where the government just created public money with no debt whatsoever, and was allowed to spend it.…

      I don’t think that this follows from the earlier paragraph because it’s not sufficiently well supported by:

      “. . . and money and prices do tend to move in the same direction the moment they are at opposite sides of the equation.”

      and

      “. . . (given the preference the US Government has to eventually “tax back” the NFAs), . . . “

      I’m not sure that either of these statements are true; but, even if they were, the empirical evidence cited by Scott Fullwiler show, that whatever the dynamics of the underlying multiple factors involved, reserves are probably less inflationary than securities, and that there is inflation penalty for adding net reserves to the private economy, as compared with adding securities to the private economy. Oh, and btw, the Government may tax back based on addition of net financial assets; but WHAT it taxes back directly is NFA in the form of high velocity money and not NFA in the form of securities.

      • Sorry, the citation to Scott I had in mind is his Coin Seigniorage and Inflation, which I rely on heavily for “http://neweconomicperspectives.org/2012/12/platinum-coin-seigniorage-issuing-debt-keystroking-deficit-spending-and-inflation.html” title=”PCS and I”>my own analysis.

        I’d suggest that if you want to address the idea that:

        “…reserves issued unaccompanied by debt are no more inflationary than reserves issued along with debt…”

        you ought to address Scott’s treatment in his piece directly.

  8. Hey Joe, just a thought here
    60 is an odd number, might as well make it 100….:-)
    actually, if they did mint 100 x 1TDC, what could be done as an interim step, the treasury could deposit them in a safety deposit box at the fed vault. the coin(s) don’t need to all be credited to the trsy account at once, as people freak at at using just 1TDC, never mind a hvpc. then as needed trsy could instruct fed to remove tdc from box and deposit into account. sort of a way to slow into it if we can’t get the full hvpc through at once.

    let’s keep it going!

    • Damn it, folks. Slow doesn’t cut this. We can’t be sure the law will be there four years from now, and we can’t be sure a hostile Congress in 2015 won’t give the Fed the right to refuse the legal tender; which it does not have right now.

      Also, doing it slowly just will not make it more acceptable to the opposition to PCS. It will only give the opposition a chance to get organized and use their domination of the media to repeal PCS and install the same old system.

      If the President wants to do this he should not use half measures. He should fill the public purse while he still can, and make that filled purse a fait accompli that changes the context of politics virtually over night. Then let the austerians rant and rave and gnash their teeth and do their worst. We will have back a Federal Government that can function once more because the excuse of the debt/deficit for doing nothing or for doing something that clearly will not work, like the ARRA or the ACA, will be gone for good.

      On the $60 or $100 T number, I have no strong preference. I worked with $30 T first, then decided it wouldn’t provide enough years for MMT to educate people about the desirability of the Treasury being able to create electronic credits at will, preferably by folding the Fed into the Treasury. So, I doubled the amount to $60 T figuring that would remove the debt subject to the limit and also cover 15 – 25 years deficit spending which ought to be enough time to get the new economic paradigm accepted. But, if the President would rather do $100 T, then I’d be ecstatic with that, certainly, or with a Quad coin for that matter. But for reasons just explained I think that $60 T is high value enough to do the job I want to do.

  9. What could be the motive behind the calls for austerity? After all, if the rest of us are doing well, the elite would only get richer.

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