How Can Our Senators and Representatives Vote for Giving Away Our Monetary Sovereignty?

Right now the US fulfills the three essential conditions for monetary sovereignty: 1) it issues its own non-convertible currency, 2) which it allows to float on international currency markets; and 3) it owes no debts in any currency other than dollars. Because it is monetarily sovereign, and can always meet its obligations the US can never be forced into insolvency.

It can become insolvent due to Congressional decisions such as failing to raise or repeal the debt ceiling, or Executive decisions such as failing to use its platinum coin minting authority to fill the public purse and then pay its bills once it has reached the debt ceiling. But again, it cannot be forced into insolvency by external financial or economic factors that are beyond the control of the Federal Government (including the Congress).

Monetary sovereignty is of tremendous value to us. As long as the United States retains it, then for example, we can never become Greece, or for that matter, Weimar Germany, since the latter’s hyperinflation was in large part caused by the fact that it owed its war reparation debts in goldmarks, or in currencies convertible to gold, and could not repay them in its own non-convertible currency, the Mark, which it could freely issue.

It also means, that the US has greater policy space for deficit spending and debt issuance than nations that have given up their currency, have fixed exchange rates, and owe debts in foreign currencies whose price in international markets it cannot control. Given all the current problems of the US, that may require deficit spending to solve, giving up monetary sovereignty is a monumentally risky thing to do, and exhibits the casual and foolish thoughtlessness of the President proposing it and the Congress seriously considering the Trans- Pacific Partnership (TPP) Agreement.

Passing the TPP would compromise the monetary sovereignty of the United States and subject us to the influence of currency markets on the prices we may have to pay for foreign currency under a plausible scenario allowed by the Agreement. Specifically, I don’t see anything in the TPP investment chapter requiring that damages be awarded by the Investor State Dispute Settlement (ISDS) tribunals in the sovereign currency of nations incurring damage awards for lost profits, but only that they be awarded in a “freely usable currency” as specified by the IMF. So, complainants in these tribunals could ask for and win damages payable in foreign currencies, rather than US dollars, which the US would then owe in that foreign currency.

So, it flows from these considerations that passing the TPP would create the conditions for ending US monetary sovereignty for the first time since the international gold window was closed in 1971. The seriousness of this compromise of monetary sovereignty would depend upon the frequency and magnitude of judgments against the United States Government. So, how bad can it get?

No one knows. But we do know that “ . . . the TPP would empower another 25,000 foreign corporations to use the investor state tribunals, against the United States . . . an expansion many times the US’s current level of exposure.

We also know that Ecuador is currently facing a judgment against it awarded to Occidental Petroleum in the amount of $2.3 Billion for Ecuador’s lawful termination of a contract for drilling rights. For Educador, a judgment of that size is comparable to one of $340 Billion against the United States, denominated in a foreign currency it cannot issue. (The Dollar is Ecuador’s unit of account and official currency right now, but, of course, it is a currency Ecuador cannot issue.)

If you think this possibility is far-fetched, consider that ISDS actions are a business for multinational corporations experiencing rapidly accelerating and perhaps exponential growth. They and the ISDS Courts, staffed by lawyers who play the roles of judges for those Courts one day, and representatives of the potential plaintiffs in these Courts the next, have little incentive not to expand this line of business to the maximum the traffic can bear. Here’s what Elizabeth Warren thinks about this issue:

ISDS advocates point out that, so far, this process hasn’t harmed the United States. And our negotiators, who refuse to share the text of the TPP publicly, assure us that it will include a bigger, better version of ISDS that will protect our ability to regulate in the public interest. But with the number of ISDS cases exploding and more and more multinational corporations headquartered abroad, it is only a matter of time before such a challenge does serious damage here. Replacing the U.S. legal system with a complex and unnecessary alternative — on the assumption that nothing could possibly go wrong — seems like a really bad idea.

The deficit terrorists among us worry needlessly all the time about the bond vigilantes driving bond interest rates beyond what is fiscally sustainable for the United States, and use this argument to call for crippling deficit reduction and austerity, even though they must know by now that the result is economic stagnation and growing inequality. But they are strangely silent about what the TPP’s attack on US monetary sovereignty, making us subject to market-determined prices of foreign currencies, would do to fiscal sustainability, and equally silent about the issue of whether the compromising of our monetary sovereignty is fiscally responsible or not. It looks like they don’t care about fiscal responsibility and fiscal sustainability when it comes to a choice between these things and the possible frustration of the “expectations of profits” of multinational corporations.

Which brings us back to our erstwhile Representatives and Senators in Washington. How they can even consider Fast Track Authority for the President without extensively considering and debating the sovereignty-infringing aspects of the TPP is beyond me. Its potential infringement on Monetary Sovereignty is only one of these. There are many others, as well. And it is hard to understand how people who swear fealty to the United States can justify their apparent complete lack of concern for these issues when they make trade agreements.

22 Responses to How Can Our Senators and Representatives Vote for Giving Away Our Monetary Sovereignty?

  1. Bill Bachofner

    Hey Mr Joe,
    But again, it cannot be forced into solvency by external financial or economic factors that are beyond the control of the Federal Government (including the Congress).

    Did you mean to use “insolvency” in this sentence rather than “solvency?”

    Bill

  2. We, THE PEOPLE — Are STILL Asleep!

  3. Howard Switzer

    Joe,
    I think Congress can and will vote to give our “sovereignty” away because that is what they are being paid, under the table, to do! But I think to say we have “monetary sovereignty” is conflating the fact that the dollar is the current international exchange unit with monetary sovereignty.” As I understand monetary sovereignty, we’ve only exercised this right of nations twice in over 200 years, once to create the nation and once to defend it from dissolution. And that right was given or taken away soon after each. We won the revolution militarily but surrendered it monetarily when our first Secretary of the Treasury handed, what Martin Van Buren called the Money Power, over to the private banks. It is an illusion, similar to the FED, that we have monetary sovereignty, our nation does not issue its own money, it borrows it at interest, $416 billion per year now. A governments primary responsibility is to issue the money for the benefit of its people, if it does not it becomes a tool of control for those who do. Congress is not giving away our sovereignty, they are giving away the illusion that we have sovereignty. This is how I understand it. Am I mistaken?

    • Joe Firestone

      Yes. We fulfill the three conditions of fiat currency sovereignty right now. We may not use the policy space this gives us because we are very stupid about using it. But that does not change the fact that we have a fiat sovereign currency.

      Your assumption that being the reserve currency has anything to do with being a fiat sovereign is incorrect. many other nations apart from ourselves are fiat sovereigns, but don’t issue the reserve currency.

      • Howard Switzer

        Joe, pardon me but I have trouble with calling Federal Reserve Notes “sovereign” money since they are issued by a private institution, in government disguise as I understand it, and our government borrows it at interest. If it were “sovereign money” the government would create and issue it and we would not have any national debt, why would we? And why do you keep calling it fiat money? All money is fiat money including gold, that is the nature of money, “..money exists not by nature but by law.” (by fiat) Aristotle, Silvio Gesell, Fredrique Soddy and numerous others have explained this. We the People are supposed to be the sovereign in this nation, not the big banks. This why I think it is important not to confuse the issue by calling bank notes sovereign money. I’m sure the bankers would all love for us all to believe that they are the sovereign but they are not, not in my book at least, I believe in democracy.

    • ” It is an illusion, similar to the FED, that we have monetary sovereignty, our nation does not issue its own money, it borrows it at interest, $416 billion per year now.”

      Howard, this is as I understand it:
      I think it is Frank Newman in his book “Six Myths that Hold Back America” who says something to the effect of “fish swim in the water and U.S. dollars swim (or stay) in the U.S.banking system. Money enters the banking system either through the private banks creating it through credit as loans (loans create deposits). commercial banks can also create excess reserves by buying treasury bonds, but all of this is under the ultimate auspices of the central bank (90% of new money is created this way) OR new money can be created through deficit spending (the treasury selling bonds). In all instances, the government creates its own money (or allows it creation). It has just set up this method for doing so. FACT: all money then is created as debt. So even a dollar bill is an instrument of debt ( it is a non interest bearing Federal Reserve NOTE). ALL MONEY IS CREATED AS DEBT.

      People accumulate huge sums of dollars ( e.g. pension funds, China through our trade deficits) and want a safe place to park them. U.S. bonds fulfill that need. It is convenient for the government to sell bonds for this purpose, for by selling bonds the central bank can control interest rates, which of course, gives it some measure of control over inflation (and, theoretically, deflation). China and the pension funds gets some interest payments in return for not spending their monies (interest = more debt money).

      All the national “debt” is just the amount of money which has been created which resides in all the bank accounts in the system as a whole. The national debt is actually the “debit” and the private sector savings is actually a “credit.” If all money is created as debt, then Mariner Eccles’ testimony before Congress in 1947 becomes enlightening for those who pay attention:

      Mr. PATMAN. NOW, in order to get our definitions straight a little further, our economy is based upon debt; our bank system and our money are based on debt; that is right, is it not?
      Mr. ECCLES. Money is created by bank credit.
      Mr. PATMAN. Yes.
      Mr. ECCLES. That is right. And the bank reserves are created by the central bank.
      Mr. PATMAN. With some exceptions, if all the people were to pay their debts to the banks and the United States Government should pay its debts, there would not be any money to do business with, would there, except just a little, like Civil War money, and coins, and things like that, probably about four or five billion dollars; is that not right?
      Mr. ECCLES. That is right. That is what happened after 1929. With debt contraction—we have never had a period of prosperity when there has not been an expansion of debt on balance, by either the Government or by the private individuals or corporations, or by both. Whenever debt has contracted on balance, you have had a depression. From 1929 to 1933 I think there was a total debt contraction, as I recall, of something like $30,000,000,000. This was bank debt and also private debt.,
      Mr. PATMAN. Well, is the reason not obvious, that since our money is based upon debt, and our bank system also, and money is created through the bank system by debt, that we can only be prosperous if we go into debt, and if we pay our debts, why, we are in a depression; is that not right?
      Mr. ECCLES. YOU have got to distinguish between bank debt and debt outside of the bank. The expansion of debt to the banks creates deposits and deposits, of course, are always available to be withdrawn as currency. In other words, the growth of debts to banks, whether in the form of public debt, such as the ownership of Government bonds, municipal debt, or private debt, creates deposits. That is where the great growth of bank deposits has come from, largely through the growth of debt, and largely Government debt. And that, of course, is responsible for our very large, what we term, money supply.
      Mr. PATMAN. I want to get into that later, if you will permit me to»
      Mr. ECCLES. I just wanted to add this one further point: That debts outside of the banks merely mean the velocity of the circulation of money. In other words, a person draws a deposit out of the bank to pay an insurance company his premium, and the insurance company puts it back into the bank, and there is no more money. The insurance company lends that to somebody to build a house and it goes back in the bank, and, as it is spent to pay the various trades people, it circulates. But when debt from one to another, outside of the banks, is incurred, it does not create money, it puts money into circulation.

      Think of our economy like a great big Monopoly game. The bank pays each player a sum of money to begin with (his basic guaranteed income, so to speak, because the player did not “earn” it), and it is with that money that the economy moves forward. The bank is in “deficit” to the amount it gave each player. If the deficit were to be paid off, there would be no economy. The game goes back in the box.

      You have to decide if the Fed giving people a place to park huge sums of money safely increases the value of the dollar; you have to agree if paying them debt money on that amount is worth the flexibility it gives the Fed to control interest rates, fund government spending, etc. You see, if the government can create dollars (or allow banks to); if it can create bonds to sell at interest, it COULD issue the money straightway without bonds. It could also have treasury issue a trillion dollar coin. See? But the point is, the government issues its own money, and issues debts of different forms which are only redeemable in its own money therefore no outsider can hold it hostage. The Chinese can have a three trillion dollar bond or they can have three trillion dollars. They can buy whatever can be bought with that money and the interest paid thereon; but the U.S. does not HAVE to borrow the 3T in dollars as is obvious; it just finds it convenient to do so.

      And that my friend is why the national debt will never be “paid off” and no one expects it to who understands how the system works.

  4. since the end of World War II ,America`s financial and moral model has been the same as Nazi Germany`s;
    “might is right”. it`s companies and corporations can polute,poison and cause the deaths of millions of people
    all over the world; protected by it`s Military might. 2008 the world`s financial system was taken to the brink of destruction by US Oligarchs and their Federally backed investment banks. According to UN Investigators,
    Wall St. was saved by Mexican Drug Cartel cash, laundered by the recipient banks. The Cartels were the only
    organisations with billions of liquid cash. Sovereign Nations are forced into debt and their Assets Privatised and
    seized with the aid of US proxies the World Bank, IMF ,ECB etc. Teir Sovereign Wealth Funds Stolen like Libya
    had it`s fund stolen by Goldman Sachs, after Gadaffi was killed. The USA is supposed to be $18Trillion in Debt, but who has the balls to collect?

    • Joe Firestone

      The U.S. Is in debt to its bond creditors in the same way as a bank who has issued a CD you own is in debt to you. In other words, the government’s debt is no burden to it and represents 18 Trillion in savings owned By the private sector and the rest of the world.

  5. Howard Switzer

    There are no sovereign nations, they are all ruled by the global financial authorities.

  6. Pingback: Obama & TPP: Every One That Doeth Evil Hateth the Light by William Black | PROGRESSIVE ACTIVISTS VOICE

  7. Pingback: Obama and TPP: Every One That Doeth Evil Hateth the Light–2 | PROGRESSIVE ACTIVISTS VOICE

  8. What that means is that fossil fuel corporations, agribusinesses, chemical manufacturers can sue entire countries, even continents – once this goes global. Monsanto is suing the COUNTRY of France. this will happen all over the world and governments will be made insolvent and powerless against the world cartel of plutocrats. The obscenely rich will get obscenely richer and control lands, currency, food, people – everything – and the rest of us will be one big 3rd world global mass of enslaved poverty. Our lands will be taken, and all of our assets. We will be slaves. Finally the white people in the U.S.A. will know what the rest of the world has gone through, and our own country has caused so many other countries and the First Nations here to die and live in poverty and poor health.
    I don’t see TPP as stoppable, because really – it’s already too late to stop the tide of history now. the U.S. and its history of militarism, warfare and bully-coups has pissed off most of the rest of the world – and who can really blame them? It seems the plutocrats WANT this country to fall – and so it will.

  9. I concur that, in awarding damages, leaving the choice of currency vaguely up to the IMF is insufficient. But I believe that in the overall scheme of things, currencies should be equally treated. Would you be satisfied with a rule mandating that awards of damages ordinarily be in the currency of the state under whose laws the complained of conduct took place? (With safeguarding exceptions against abuse.) Or would this be unworkable?
    I stress that I fully agree that the TPP rules that reportedly define actionable conduct amount to unconscionable infringements of local sovereignty. I just don’t think that it unreasonable to implement proper trade agreements through courts that can make awards in non-US currencies, at least not when a US company brings a suit for a claim based conduct outside of the US.

    • Joe Firestone

      I think awards should always be made in the unit of account of the country which is the target of the lost profits claim. However, I also don’t think that corporations ought to be able to sue governments for economic damages at all, unless the disputes involved occur in international settings. I think that when a foreign corporation decides to do business in another country, it must simply a cog the political rules and political order of the host country. I know that those rules may change at any time, and I think that the risk of such changes is simply one that the businesses who choose to do business in foreign nations must take.

  10. Tracing the definition of “freely usable currency” to its source (IMF Article XXX(f)), I see nothing that could be interpreted to require the US to pay damages in foreign currencies. Moreover, the text apparently provides for the US to satisfy any judgment (at home or abroad) with US dollars. Here is the text:
    “A freely usable currency means a member’s currency that the Fund determines (i) is, in fact, widely used to make payments for international transactions, and (ii) is widely traded in the principal exchange markets.”
    As so defined, do you seriously contend that the IMF might determine that dollars were NOT a freely usable currency? I’m not being rhetorical here. I’m wondering if that really is your contention. It seems far fetched to me, but maybe you think otherwise.

    • Joe Firestone

      No, I don’t seriously think that the IMF will decide that the dollar isn’t a freely usable currency in international trade. But that’s not the issue. The issue is whether an ISDS Court can decide to award damages to a multinational denominated in a currency different from the currency of the nation having to pay the damages. I think there is nothing in the TPP stopping ISDS Courts from making such awards if it decides to do that as know JG as the award is in a freely tradable currency.

      • I concur with your clarifying responses, which my mind conceives as follows: (1) Corporations should not be able to sue governments except as ordinarily allowed under each nation’s domestic Takings law. (2) In any case, damages should as a general rule be awarded and payable in the pertinently local currency.
        Thanks.

  11. Joe, it is my understanding of the Constitution that all debts incurred by the government must be paid. Hence, a debt ceiling is a nonsense and can be circumvented by executive order.

    ‘The validity of the public debt of the United States … shall not be questioned.’ 14th Amendment, Section 4

    • No, that is not why the debt can never be paid off. It can be paid off. See Meeting of the Federal Open Market Committee, January 30-31, 2001 at http://www.federalreserve.gov/monetarypolicy/files/FOMC20010131meeting.pdf. This was the meeting’s premise:
      “Under a wide variety of assumptions about the growth of the economy and the political process, Treasury debt will be repaid over coming years. Even if the entire on-budget surplus is used in tax cuts and new spending, debt will be close to extinguished in 10 years under a fairly conservative assumption of 3-1/2 percent trend economic growth.”
      The fact that this didn’t happen as foreseen is merely due to increased spending and reduced taxes.

  12. Howard Switzer

    Ruthie, Bank note money is debt money, and yes, all money currently is bank note money, every nation is being held in debt to the private banking system. This began in the 1600s when Sweden handed over its sovereign money power to the banks, England did it in 1694. Sovereign money, however, is equity money, not debt. I am shocked that this difference is not being understood here. The Continental and the Greenback (“Civil War money”) are the only two instances in US history of our nation issuing sovereign money in any significant amount and I firmly know that it is the only way we will ever be able to meet our public obligations to the people and the planet. The myths that keep us from seeing this truth need to be exposed. J.D. Alt seems to understand this, that is why I’m here, but I’m not sure about the rest of the writers….