Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

IMF Economic Fear Mongering Comes to America

Politics / US Debt Mar 02, 2010 - 06:44 AM GMT

By: Ellen_Brown

Politics

Best Financial Markets Analysis ArticleIn addition to mandatory private health insurance premiums, we may soon be hit with a “mandatory savings” tax and other belt-tightening measures urged by the President’s new budget task force.  These radical austerity measures are not only unnecessary, however, but will actually make matters worse.  The push for “fiscal responsibility” is based on bad economics.


When billionaires pledge a billion dollars to educate people to the evils of something, it is always good to peer closely at what they are up to.  Hedge fund magnate Peter G. Peterson was formerly Chairman of the Council on Foreign Relations and head of the New York Federal Reserve.  He is now senior chairman of Blackstone Group, which is in charge of dispersing government funds in the controversial AIG bailout, widely criticized as a government giveaway to banks.  Peterson is also founder of the Peter Peterson Foundation, which has adopted the cause of imposing “fiscal responsibility” on Congress.  He hired David M. Walker, former head of the Government Accounting Office, to spearhead a massive campaign to reduce the runaway federal debt, which the Peterson/Walker team blames on reckless government and consumer spending.  The Foundation funded the movie “I.O.U.S.A.” to amass popular support for their cause, which largely revolves around dismantling Social Security and Medicare benefits as a way to cut costs and return to “fiscal responsibility.” 

The Peterson-Pew Commission on Budget Reform has pushed heavily for action to stem the federal debt.  Bills for a budget task force were sponsored in both houses of Congress.  The Senate bill was narrowly defeated, and the House bill was tabled; but that was not the end of it.  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; and private debt has collapsed.  This year to date, U.S. lending has been contracting at the fastest rate in recorded history.  A credit freeze has struck globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the government needs to step in and start “monetizing” debt itself, or turning debt into dollars.  

Although lending remains far below earlier levels, banks say they are making as many loans as they are allowed to make under existing banking rules.  The real bottleneck is with the “shadow lenders” – those investors who, until late 2007, bought massive amounts of bank loans bundled up as “securities,” taking those loans off the banks’ books, making room for yet more loans to be originated out of the banks’ capital and deposit bases. Because of the surging defaults on subprime mortgages, investors have now shied away from buying the loans, forcing banks and Wall Street firms to hold them on their books and take the losses.  In the boom years, the shadow lending market was estimated at $10 trillion.  That market has now collapsed, leaving a massive crater in the money supply.  That hole needs to be filled, and only the government is in a position to do it.  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. 

Another Look at the Budget Reform Agenda

That raises the question, are the advocates of “fiscal responsibility” merely misguided?  Or are they up to something more devious?  The President’s Executive Order is vague about the sorts of budget decisions being entertained, but we can get a sense of what is on the table by looking at the earlier agenda of Peterson’s Commission on Budget Reform.  The Peterson/Walker plan would have slashed social security entitlements, at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees.  Worse, it would have increased the social security tax, disguised as a “mandatory savings tax.”  This added tax would be automatically withdrawn from your paycheck and deposited to a “Guaranteed Retirement Account” managed by the Social Security Administration.  Since the savings would be “mandatory,” you could not withdraw your money without stiff penalties; and rather than enjoying an earlier retirement paid out of your increased savings, a later retirement date was being called for.  In the meantime, your “mandatory savings” would just be fattening the investment pool of the Wall Street bankers managing the funds.

And that may be what really underlies the big push to educate the public to the dangers of the federal debt.  Political analyst Jim Capo discusses a slide show presentation given by David M. Walker after the “I.O.U.S.A.” premier, in which a mandatory savings plan was proposed that would be modeled on the Federal Thrift Savings Plan (FSP).  Capo comments:

“The FSP, available for federal employees like congressional staff workers, has over $200 billion of assets (on paper anyway). About half these assets are in special non-negotiable US Treasury notes issued especially for the FSP scheme. The other half are invested in stocks, bonds and other securities. . . . The nearly $100 billion in [this] half of the plan is managed by Blackrock Financial. And, yes, shock, Blackrock Financial is a creation of Mr. Peterson's Blackstone Group. In fact, the FSP and Blackstone were birthed almost as a matched set. It's tough to fail when you form an investment management company at the same time you can gain the contract that directs a percentage of the Federal government payroll into your hands.”

What “Fiscal Responsibility” Really Means

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 U.S. 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 – U.S. 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% interest rates.

Economic Fearmongering

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.  Borrow from whom?  From the bankers, of course.   And where do bankers get the money they lend?  They 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 website 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 advisors 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. 

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com.

Ellen Brown is a frequent contributor to Global Research.  Global Research Articles by Ellen Brown

© Copyright Ellen Brown , Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules