Below is most of an excelent article expounding on the relationship of the money supply, debt, the deficit, and the Federal Reserve as it applies to todays financial mess. The details for a full understanding are here, it just takes a little study for a full grasp of the concepts. It is up to us as individuals to understand the consequences of Government action acting in partnership with the powers of financial capitalism. Your educated vote is needed more than ever. In the next post I will discuss the President's new National Commission on Fiscal Responsibility and Reform which is working against your best interests with their mantra that “everything is on the table”, except military spending of course. The new commission takes the attitude that our problems stem from over spending rather than under taxing. After this decade of massive tax cuts to the wealthy and massive fraud in the financial and home mortgage markets you are expected to make "real sacrifices to strengthen our nation", of course they mean Social Security and Medicare cuts.
Wall Street Took Your House and Your Retirement, Now They're After Your Social Security
In Obama's State of the Union speech on January 27, he said he would be creating a presidential budget task force by executive order to address the federal government's deficit and debt crisis, and that the task force would be modeled on the bills Congress had failed to pass. If Congress would not impose "fiscal responsibility" on the nation, the president would. "It keeps me awake at night, looking at all that red ink," he said. The executive order was signed on February 17.
What the president seems to have missed is that all of our money except coins now comes into the world as "red ink," or debt. It is all created on the books of private banks and lent into the economy. If there is no debt, there is no money;
Paying down the federal debt when money is already scarce just makes matters worse. When the deficit has been reduced historically, the money supply has been reduced along with it, throwing the economy into recession.
All of this puts "fiscal responsibility" in a different light. Rather than saving the future for our grandchildren, as the president himself seems to think it means, it appears to be a code word for delivering public monies into private hands and raising taxes on the already-squeezed middle class. In the parlance of the International Monetary Fund (IMF), these are called "austerity measures," and they are the sorts of things that people are taking to the streets in Greece, Iceland and Latvia to protest. Americans are not taking to the streets only because nobody has told us that is what is being planned.
We have been deluded into thinking that "fiscal responsibility" (read "austerity") is something for our benefit, something we actually need in order to save the country from bankruptcy. In the massive campaign to educate us to the perils of the federal debt, we have been repeatedly warned that the debt is disastrously large; that when foreign lenders decide to pull the plug on it, the US will have to declare bankruptcy; and that all this is the fault of the citizenry for borrowing and spending too much. We are admonished to tighten our belts and save more; and since we can't seem to impose that discipline on ourselves, the government will have to do it for us with a "mandatory savings" plan. The American people, who are already suffering massive unemployment and cutbacks in government services, will have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the IMF.
Fortunately for us, however, there is a major difference between our debt and the debts of Greece, Latvia and Iceland. Our debt is owed in our own currency - US dollars. Our government has the power to fix its solvency problems itself, by simply issuing the money it needs to pay off or refinance its debt. That time-tested solution goes back to the colonial scrip of the American colonists and the "Greenbacks" issued by Abraham Lincoln to avoid paying 24-36 percent interest rates.
Economic Fear Mongering
What invariably kills any discussion of this sensible solution is another myth long perpetrated by the financial elite - that allowing the government to increase the money supply would lead to hyperinflation. Rather than exercising its sovereign right to create the liquidity the nation needs, the government is told that it must borrow from private lenders. And where does their money come from? Ultimately from banks, which create it on their books just as the government would have done. The difference is that when bankers create it, it comes with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money supply; and rather than producing hyperinflation, we continue to suffer from deflation. Frantically pushing money at the banks has not gotten money into the real economy. Rather than lending it to businesses and individuals, the larger banks have been speculating with it or buying up smaller banks, land, farms and productive capacity, while the credit freeze continues on Main Street. Only the government can reverse this vicious syndrome, by spending money directly on projects that will create jobs, provide services and stimulate productivity. Increasing the money supply is not inflationary if the money is used to increase goods and services. Inflation results when "demand" (money) exceeds "supply" (goods and services). When supply and demand increase together, prices remain stable.
The notion that the federal debt is too large to be repaid and that we are imposing that monster burden on our grandchildren is another red herring. The federal debt has not been paid off since the days of Andrew Jackson and it does not need to be paid off. It is just rolled over from year to year, providing the "full faith and credit" that alone backs the money supply of the nation. The only real danger posed by a growing federal debt is an exponentially growing interest burden; but so far, that danger has not materialized either. Interest on the federal debt has actually gone down since 2006 - from $406 billion to $383 billion - because interest rates have been lowered by the Fed to very low levels.
They can't be lowered much further, however, so the interest burden will increase if the federal debt continues to grow. But there is a solution to that too. The government can just mandate that the Federal Reserve buy the government's debt and that the Fed not sell the bonds to private lenders. The Federal Reserve states on its web site that it rebates its profits to the government after deducting its costs, making the money nearly interest-free.
All the fear mongering about the economy collapsing when the Chinese and other investors stop buying our debt is yet another red herring. The Fed can buy the debt itself - as it has been stealthily doing. That is actually a better alternative than selling the debt to foreigners, since it means we really will owe the debt only to ourselves, as Roosevelt was assured by his advisers when he agreed to the deficit approach in the 1930s; and this debt-turned-into-dollars will be nearly interest-free.
Better yet would be to either nationalize or abolish the Fed and fund the government directly with Greenbacks as President Lincoln did. What the Fed does the Treasury Department can do, for the cost of administration. There would be no shareholders or bondholders to siphon earnings, which could be recycled into public accounts to fund national, state and local budgets at zero or near-zero interest rates. Eliminating debt service payments would allow state and federal income taxes to be slashed; and the public managers of this money, rather than hiding behind a veil of secrecy, would be opening their books for all to see.
A final red herring is the threatened bankruptcy of Social Security. Social Security cannot actually go bankrupt, because it is a pay-as-you-go system. Today's social security taxes pay today's recipients; and if necessary, the tax can be raised. As Washington economist Dean Baker wrote when President Bush unleashed the campaign to privatize Social Security in 2005:
"The most recent projections show that the program, with no changes whatsoever, can pay all benefits through the year 2042. Even after 2042, Social Security would always be able to pay a higher benefit (adjusted for inflation) than what current retirees receive, although the payment would only be about 73 percent of scheduled benefits."
Today, incomes over $97,000 escape the tax, disproportionately imposing it on lower income brackets. Projections over the next 75 years show that just removing that cap could eliminate the forecasted deficit. When the Democratic presidential candidates were debating in the fall of 2007, Barack Obama and Joe Biden were the only candidates willing to seriously consider this reasonable alternative. President Obama just needs to follow through with the solutions he espoused when campaigning.
The Mass Education Campaign We Really Need
What is really going on behind the scenes may have been revealed by Prof. Carroll Quigley, Bill Clinton's mentor at Georgetown University. An insider groomed by the international bankers, Dr. Quigley wrote in Tragedy and Hope in 1966:
"[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."
If that is indeed the plan, it is virtually complete. Unless we wake up to what is going on and take action, the "powers of financial capitalism" will have their way. Rather than taking to the streets, we need to take to the courts, bring voter initiatives and wake up our legislators to the urgent need to take the power to create money back from the private banking elite that has hijacked it from the American people. And that includes waking up the president, who has been losing sleep over the wrong threat.
--------------------------- see also
http://www.counterpunch.org/cooke02242010.html The Plot to Kill Social Security
http://www.counterpunch.org/baker04282010.html The Flight of the Deficit Hawks The Coming Plan to Slash Social Security and Medicare
Karl Marx: " Money plays the largest part in determining the course of history"
Leo Tolstoy: " Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal – that there is no human relation between master and slave "
Hang onto your ass for it may be all that is left you!