The following is my comment regarding this article
by Glen Wallace
A possible solution not mentioned is to begin using the US Treasury as a significant source of new money to fund federal government projects and operations. Currently, federal government and governing costs are paid for by either revenue, mostly tax revenue, or by debt revenue, mostly through the sale of US treasury bonds. However, I'm talking about the third option that very few others are even publicly considering; debt-free fiat dollars computer generated by the US Treasury to pay for much of the US budget that is not debt service. Such large pieces of the budget pie as SNAP (food stamps), defense, medicare, medicaid, highways and a host of earmarks could all be paid for without incurring any debt or dipping into tax revenue.
I believe the generation of debt-free fiat is the ideal situation under circumstances such as the ones we face now. Presumably, as the Fed unwinds all that debt it paid for with new QE dollars, it will be receiving back those QE dollars and proceed to 'shred' most of it, thereby reducing the money supply. Such a huge reduction in the money supply could have a very negative effect on the overall economy. The solution then is to balance out the unwinding of the debt-based quantitative easing rounds with debt-free quantitative easing by way of US Government spending. And unlike the Federal Reserve's QE that directed funds largely at Wall Street, my easing suggestion would be one that would flush mainstreet with a gusher of currency.
And I think concerns about excessive inflation are unwarranted given that the debt-free generated fiat would match with real goods and services being paid for. Excess inflation occurs when the money supply grows much faster than the supply of goods and services paid for with the money in circulation. However, when the new debt-free fiat is used to pay for goods and services at competitive market prices, the ratio between the goods and services and the dollars to pay for them remains largely the same.
Meanwhile, the debt service on all those mountains of public debt would be much easier to service using dollars obtained from usual means of revenue -- but now hopefully without having to again resort to taking on even more public debt.
We need a strong central government imposing regulations to protect the common man from the tyranny of the wealthy. While, as a leftie progressive, I'm willing to admit that some regulations are onerous and unnecessary, I never seem to hear from a right wingnut regressive admitting that some regulations are helpful and needed to protect the worker, the consumer and the environment from harm or exploitation at the hands of a ruthless businessman. It seems like the free market set want to create a social political environment where we return to the days of company towns where the residents are considered to have freedom because they aren't physically restrained from leaving -- never mind that the company town is in the middle of nowhere and none of the residents own a car or have a dime to their name that could be used to move out.
Let's remove the income tax and put in its place a federal property tax on the wealthy that covers not just real estate but any and all assets held by the top one tenth of one percent.
Good regulations are proactive whereas, any competitive marketplace without any regulation, is, at best, reactive in dealing with problems. I say 'at best' because some business can go on harming customers, the environment or workers for years or decades before, or if ever, they get punished in the marketplace for their actions.
The Democratic Party could gain their biggest strength by undermining or outright removing the biggest rallying points for the political right wing. Democrats could start by eliminating income tax for most, if not all, the 99 percent. The loss of revenue could be compensated for by increasing the income tax on the top one tenth of the top one percent. Additionally, there are a great number of other sources of potential revenue the could, and should be tapped -- high frequency trading machine tax, VAT tax, where resource extraction on Federal lands is a given, the transaction should be designed with a fiduciary responsibility towards the owners of that land -- the citizens of the U.S.
Additionally, the power over the ability to create money needs to be returned entirely to the people and taken away from the private Federal Reserve Banking system. I'm not saying "end the Fed". If they want to continue as a industry association where banks can voluntarily join, that's fine. But monetary policy should be set by the US Treasury. While supporters and representatives may claim that the Fed is audited and nothing untoward has been found, I would counter that there still could be something untoward going on with the Fed and its relationship to the American people it is supposed to be looking out for. While the Fed may have only one set of accounting books, it may have two sets of strategy books. That is, it may have a public strategy that complies with the Congressional mandate it is supposed to follow, it may have a private strategy that it instead follows that is directed at aiding the Fed's shareholders at the expense of the American people. For, instance, had Fed insiders known early in the 2000's where the housing crisis was heading they could have made some strategic shorts, thus benefiting from the Fed's strategy to blow up the housing bubble. Then when the bubble burst, Fed insiders could have had inside knowledge of the QE program and how it would be used to boost commodities and the stock market for which the insiders could take a long position ahead of the rise.
But regardless, Democrats need to look at what is motivating the populist base of the Republican party that leads them to vote the way they have. And then have an answer that might just persuade them to switch sides. Remember, most of those Republican voters are not rich. Hired disinfo agents may try to fire up that middle to lower class Republican base by complaining about wealth redistribution. But I find it hard to believe that base will get worked up into much of a lather when hearing about how some sherry swilling, tailored suit wearing, manicured men with soft hands that never have seen a callous in its life, with a sixty thousand dollar Patek Philippe watches sitting just above those soft hands, has to fork over more in taxes -- especially when that would mean those working class Republicans get to avoid paying income tax altogether.
Additionally, where regulations are concerned, show how good regulations protect the consumer, the environment and the worker from unscrupulous business owners and how a strong government acts as a measure against such businesses. Without a strong government there is a power mismatch between the little guy and the tycoon. But where there is unnecessary, onerous regulations, Democrats should be seen working hard to end such bad regulations while continuing to strengthen, tweak, enhance good existing regulations while enacting new good helpful regulations.
A decision needs to be made regarding financial institutions as to whether they are a capitalist private enterprise or a public utility -- they shouldn't try to be both at the same time. Well, a bank can be both at the same time but we saw the consequences of attempting those dual roles in 2008. I'm concerned though that the government regulators and politicians have not learned the valuable lessons of the great recession. Instead there seems to continue to be an intermingling of poorly regulated or completely unregulated speculation on risky derivatives by the same financial institutions providing both needed business and personal lending and insurance, and also wealth management of retirement and life savings of individual citizens.
If, say, the speculations on derivatives were to fail spectacularly, as they did for the failed financial institutions in 2008, would any jeopardizing of large bank standing on the losing end of those bets, amount to a corresponding jeopardization of the flow of lending capital keeping the business world running and the funds of savers entrusting their savings and investments in those jeopardized banks? If so, then it seems that would be prudent to take measures to completely separate banks engaging in traditional lending and cautious, well regulated investing, from investment banks that are willing to take on the risks associated with derivative trading.
A possible world needs to be envisioned where we imagine that a given bank fails, and decide whether letting it fail will jeopardize the entire economy of the country and therefore will need to be bailed out by the country or if it will be largely just a loss for the shareholders of the bank. If it is the former, then either a separation of the risky investment banking element from the conservative traditional banking element needs to be done, or the bank needs to be broken up into smaller pieces in a manner similar to the actions by Teddy Roosevelt on Standard Oil Corporation. We need to keep taking those measures until we wind up not having to bail out any financial institution, outside of insured deposits, regardless of the scenario.
With regard to the future US fiscal picture I foresee a deflationary spiral as more likely than an inflationary or hyperinflationary scenario. My hypothesis is that the private central banks are leaving little to chance and while the reckless over-spending may appear as fiscal bumbling and incompetence by congress and various offices of the president, it is in fact carefully planned by the central banks. Then one must ask oneself what benefits the Fed more, a deflationary or inflationary scenario. Currently after all the quantitative easing, the Fed is now holding a tremendous amount of US public debt that for the most part is earning very low interest rates. Under inflationary conditions, the Fed would be facing a situation where they are holding all of this debt that would now be worth much less but without the benefit of receiving a higher rate of return that new treasuries would have to offer in order to entice buyers. Additionally, under a hyperinflationary condition, by its very nature there is a lack of control of the financial conditions, thereby rendering central banks impotent. And looking at the Fed and other central banks, their member banks already are completely free from material want and therefore their primary area for potential growth is that in terms of power. While the central banks already yield tremendous power, it is not absolute. And a deflationary picture could yield them the opportunity for what could be the closest thing possible to having absolute power over the entire planet. They could achieve such power through taking receivership of the entire publicly owned system both materially and organizationally in exchange for forgiveness of debt owned. In an hyperinflationary scenario, however, the public debt could be just inflated away and the Fed would no longer have anything over the people to control them with.
The beginning of a deflationary crisis may ironically begin with inflation. Were the economy to grow enough to lead to inflation, the Fed, given their mandate to control inflation, may be forced to significantly raise the federal funds rate. Any rise in interest would have to be born by the the US deficit as it issues new treasuries. That, coupled with the Fed no longer having reason to engage in quantitative easing, would mean that now all the bond sales would have to go to private purchasers having no assurance that the Fed would turn around and buy those treasuries. If there where a failure to find sufficient purchasers of those treasuries then the US government would lose the funds it would need to pay for the programs that the congress agreed to pay for. Given how dependent the economy has become on government spending, were that spending unexpectedly to come to a halt due to a treasury auction failure then the economy could suddenly dip into a recession. This could all come at a time when the baby boomers would be beginning to tap into the entitlements that the government had been committed to providing but even before any auction failure, had been not funded anywhere near sufficiently by revenue. A chain reaction could ensue whereby the retirees would no longer be receiving the checks that they need to pay businesses that have now become dependent on the senior population having a dependable and reliable source of income from the government to pay their bills. Those businesses that had depended on the seniors could now become insolvent which in turn could jeopardize their vendors that were not catering directly to the seniors but still provided goods and services to businesses that did. Negative growth could ensue that would quickly become apparent to any observer that the US government would have great difficulty in generating sufficient tax revenue in the future to pay its future obligations. All the past warnings about future unfunded liabilities would no longer seem like some far away fiction, but would now be very apparent and real. US Treasuries would have to be issued with very high interest rates in the hope of enticing potential buyers. But of course the problem there is that unless the fed did try to print our way out of the problem, the higher rates would make paying off the debt all the more difficult. This is the point where the Fed would have the economy at its mercy.
Also, under deflation, the group that traditionally has been some of the biggest critics of private central banks, the gold bugs, would be stunned into silence as the value of their gold would suddenly plummet in value along with all the other commodities that would also deflate in value. Do you really think the all powerful central bankers would allow a hyperinflationary situation to occur that would give their harshest critics more power, confidence and wealth? What has been going on instead, I
believe is leading the gold bugs and other central bank critics down the primrose path by doing everything to make them believe that the central banks will do everything to prevent deflation and in their bumbling incompetence will instead allow hyperinflation to take hold. To keep the ruse alive the Fed has installed Bernanke, someone who has studied the great depression and has committed himself to do everything he can to prevent the deflationary spiral that lead to that economic crisis. But it will turn out that Bernanke is merely an actor cleverly placed to throw everyone off track in an effort to keep prying eyes off the Feds deflationary plot.
There will come a time I believe during a market crash when it will become apparent that servicing the public debt will no longer be possible by the traditional means. When it also becomes apparent that Bernanke and company will not simply fire up the printing presses to make it all go away, then we will see a really big crisis that will hit every household in the country as the whole economic infrastructure and the system of commerce that goes along with it that we have all become dependent on for our daily needs will grind to a near complete halt. At that point the public will be clamoring for a rescuer, anyone, to save them from their plight. And along comes the Fed to save the people from their plight. The masses will be completely ignorant of the fact that the private central banks planned for this all along, but the mass media, being party to the crime, will do nothing to dispel that ignorance. Instead newscasters will do just the opposite and urge everyone to put themselves at the mercy of the Fed, and give everything they ask for, including all of our public infrastructure, public lands and governments. Wanting to do anything to alleviate the suffering the masses will gladly comply and the plan for world domination by the banksters will be complete.
With the recent downturn in the stock market and a slowing of the job growth in the US, there have been increasing calls for third round of quantitative easing by the Federal Reserve. Quantitative easing, or QE as it is commonly known, is the practice of the Fed purchasing US treasury bonds from a select group of banks. The Fed pays for those bonds by simply printing, or more accurately, computer generating digits on their balance sheets and calling those digits 'dollars.' Money is often referred to metaphorically as water and in the case of QE, the Fed is manning the money spigots and is easing up on the valve and thereby letting out an increasing quantity of currency into the stream from which the overall economy dips into. The goal with QE is to stimulate economic growth by reducing the scarcity of the money businesses require to grow and hire more employees. However, the Fed has to keep in mind that they have a dual mandate of not just increasing employment but also controlling inflation. If they ease up to much on the money supply there is the danger that dollars could become too plentiful, causing the prices of goods and services to rise excessively.
While QE could work in theory, as it has been practiced with QE1 and QE2, it has largely failed because of its reliance on trickle-down economics. Trickle-down economics is a theory that whenever the the higher rungs of economic ladder prosper, that prosperity trickles down, like water, to those on the lower rungs, thereby quenching their thirst and boosting their energy to climb higher as well. But when looking at reality, history has shown that trickle-down economics does not work. If anything, there tends to be an opposite effect, leading to the adage of 'while the rich get richer, the poor get poorer.' And yet despite the refutation of trickle-down economics, the Fed has insisted on exclusively showering prosperous banks with the billions in QE cash. Its not as though the Fed has hired teams of asset purchasing crews to fan across the country and stop by garage sales to buy piles of second-hand clothes, or go to small family businesses on main street ringing their cash registers by buying their wares. Rather the Fed has merely hoped that its exclusive clientele of large banks, now flush with QE money, would willingly begin providing more loans to businesses across the country. Once the business got their new loans, they could expand and hire more employees and the trickle-down from the big banks to the little business on main street would be complete. Only it hasn't exactly worked out that way. Throughout QE1 and QE2, business loaning has remained tight, wages have been stagnant, and real job growth has been slow to non-existent.
So where has all that increased money supply gone? Well, from the standpoint of the ordinary citizen observor, it is rather hard to tell. Even though it is the ordinary citizens that are the most vulnerable and who are the ones that QE is designed to ultimately benefit, all we can do is make a deduction based on the observable market factors. And those market factors tend to indicate that QE1 and QE2 has boosted the prices in stocks and commodities. While an increase in stock prices has benefited 401k retirement accounts, the increase in commodity prices has been burdensome on the individuals and small businesses that rely on those commodities for day to day living. While the cost to fill up the gas tank or fill the grocery basket increases, peoples income from working has not. Likewise, small businesses have seen the cost of the supplies they need to run their business driven up by the inflationary effects QE has on the commodities markets. But since the wages of the consumer have not risen with the costs of doing business, it becomes difficult for businesses to raise prices for the now tapped out consumer. As a result, the bottom line for the business is hurt and it becomes difficult or impossible to grow and hire more workers. Consequently, the opposite effect that was intended by quantitative easing has occurred. Instead of flushing main street with cash, a tightening of the money supply on main street America has occurred as more and more dollars go out into the international commodity markets while fewer dollars are returning. But that should have been expected as the fulfillment of the known failure of the trickle-down economics theory.
What did the Fed think would happen when it threw money at the large banks in this high flying era of market speculation by banks? Did the Fed think that the banks would forgo the prospect of astronomical returns in the markets and instead provide loans to small businesses with a return of a few percent and a
good chance of default? Given that they can always count on the government to bail them out, why wouldn't the banks play the market casino with their new-found QE cash?
We need to end the Fed, but not go back to a gold or silver standard. Sometimes I think there is a conspiracy within a conspiracy whereby the powers that be deliberately put forth a gold standard as the only alternative currency if the Fed was abolished.
The general conspiracy is the creation and existence of the private central bank 'The Fed' and all the other private central banks around the world and their issuance of debt based currency.
The conspiracy within that general conspiracy is where the private central bank conspiracy is exposed, but only in a manner where the only alternative given is one that allows the private bankers, that own a majority of the worlds gold, even more power with a gold backed currency. The banksters would then be gaining increased power through the ability they would then have to manipulate the money supply to their advantage through the manipulation of their own huge stockpiles of gold. The plebs are then effectively being led down a primrose path to a destination not of freedom from the banksters, but just the opposite, further enslavement to the private banking system.
Bill Still, in his documentary 'The Secret of Oz' (that I've embedded at the end of this post) shows in historical instances of where gold-backed money was issued, how the masses were oppressed by bankers who withheld their gold, leading to an unnecessary scarcity of money, which in turn lead to a deflationary depression among the masses, but was advantageous to the wealthy bankers insofar as they could then buy up properties of the downtrodden masses for pennies on the dollar.
But Mr Still also showed how when president Lincoln issued, via the US Treasury, the Lincoln Greenbacks as debt free fiat money, there was widespread prosperity as a result. Backing money with gold limits the growth of the economy because the supply of gold itself is limited. The Lincoln Greenback on the other hand effectively amounted to a barter equivalency which grew in supply as the growth in goods and services also grew.
And as occurred with the Lincoln Greenback, when a money supply is not limited by the supply and suppliers of gold nor is arbitrarily limited according to the vested interests of the private central bankers, a bountiful burst in organic economic growth seems to occur once the unnecessary limits to the money supply are removed. It is as though, within all of us, is a natural eagerness and curiosity to create and explore in ways that, if harnessed, will result in a verdant economy flourishing in an environment of widespread entrepreneurship. But we are tied down and shackled by the bankers, prevented from exploring our human potential, while at the same time we are chastised for the very indebtedness that is the shackles the bankers put on us that keeps us from actualizing our potential.
So there still would be a backing of sorts to a fiat currency that was issued by the US Treasury insofar as the dollars could be exchanged for a given market-determined amount, of any given goods or services. Just so long as the fiat dollars are issued in a controlled manner that varies directly with the supply of goods and services in existence, that the dollars are exchanged for, hyperinflation will not occur. Hyperinflation would not occur because the money printers would be limited in the amount of money they could print to the amount of real goods and services in the economy and not the amount of paper and ink available to print that money.
While some may argue that we could not count on our government to issue fiat currency in a controlled manner, I would counter that the risk would be just as great for a gold backed currency to be issued in an uncontrolled manner by an irresponsible government. It is just as easy to print a dollar that says it's backed by gold as one that does not. After all, isn't that why I so often read the goldbugs urging people to take physical delivery of their gold and not trust paper gold certificates? If the issuers of gold backed certificates cannot be trusted, why would they necessarily expect an improvement from an institution that the goldbugs seem to generally mistrust -- the government.
I think that if there is sufficient transparency along with adequate democratic measurement, we can at least sufficiently count on the government to issue our currency in a controlled manner. I certainly think that a transparent democratically controlled government is many times more trustworthy than the private banking system that is currently controlling our central bank, the Federal Reserve. And for the reasons I've explained, if the government is going to be issuing money, it should be in the form of debt free fiat currency.
If you go to the Federal Reserves website you can see where they tell the story of the Continental. The Continental is the name of one of Americas earliest currencies. In what seems like an ironic case of the pot calling the kettle black, the Feds article argues that the continental became worthless because it is a fiat currency, not backed by anything, and as a result became worthless due to rampant printing. What the article ignores is that Federal Reserve Notes, the dollar, is also a form of fiat currency insofar as it is not backed by anything material either. Additionally the only reason that the Continental fiat currency became worthless, due to hyperinflation, was because the British, in a military act against the American Colonies, printed mass quantities of counterfeit Continental notes in a successful attempt to undermine the value of the money used by the Colonies. But there is no reason to believe that the British would have been any less successful had the Continental been printed with a statement that said it was backed by gold or silver.
All things being equal, history and reason shows that the best chance for economic success as a nation is with a government treasury being the sole issuer of a debt free fiat currency, issued in a controlled manner.
