Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Bipartisan "Russian Roulette", The Debt Ceiling Is Unconstitutional

Politics / US Debt Jul 31, 2011 - 03:12 PM GMT

By: Ellen_Brown

Politics

Best Financial Markets Analysis ArticleThe debt ceiling crisis can be averted by enforcing the Fourteenth Amendment, which mandates the government to pay its debts already incurred, including pensions.  That means Social Security, which IS an “entitlement,” in the original sense of the word.  We’re entitled to it because we’ve paid for it with taxes.   


The game of Russian roulette being played with the U.S. federal debt has been called a “grotesque political carnival” and political blackmail.  The uproar stems from a statute that is unique to the United States and never did make much sense.  First passed in 1917 and revised multiple times since, it imposes a dollar limit on the federal debt.  What doesn’t make sense is that the same Congress that voted on the statute votes on the budget, which periodically exceeds the limit, requiring the statute to be revised.  The debt ceiling has been raised 74 times since 1962, 10 of them since 2001.  The most recent increase, to $14.294 trillion by H.J.Res. 45, was  signed into law on February 12, 2010. 

Taxes aren’t collected until after the annual budget is passed, so Congress can’t know in advance whether or how much additional borrowing will be required.  Inevitably, there will be some years that the budget pushes the debt over the limit, requiring new legislation.  And inevitably, now that this tactic has been discovered, there will be a costly battle over the increase, wasting congressional time, destabilizing markets, and rattling faith in the American financial and political systems.  There will be continual blackmail, arm-twisting and concessions.  The situation is untenable and cries out for a definitive resolution.         

Fortunately, there is one.  A bevy of legal scholars are recommending that the issue be eliminated altogether by playing the Constitutional trump card.  The Fourteenth Amendment provides at Section 4:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Where statute and the Constitution collide, the Constitution prevails.  Whether the government should pay the bills it has already incurred is not a matter of negotiation.  It is a Constitutional mandate.  And those are the bills we are talking about here, as President Obama stressed in his remarks on the issue last Friday.  He said:

Raising the debt ceiling simply gives our country the ability to pay the bills that Congress has already racked up.  I want to emphasize that.  The debt ceiling does not determine how much more money we can spend, it simply authorizes us to pay the bills we already have racked up.  It gives the United States of America the ability to keep its word

Ignoring the debt ceiling on Constitutional grounds would not, as Michelle Bachmann declares, make President Obama a “dictator.”  It would simply mean he is complying with his Constitutional mandate to pay the government’s bills on time and in full. 

Social Security Is Not Welfare.  It Is a Debt Due and Owing.

The President could have a clean resolution of the issue, but he is not jumping at the opportunity.  Rather, he appears to be ready to throw Granny under the bus by slashing Social Security, Medicare and Medicaid, all in the name of “compromise.”  

The Fourteenth Amendment says debts already incurred shall not be questioned, “including debts incurred for payment of pensions.”  That includes Social Security, which is an “entitlement” in the true sense of the word: we’re entitled to it because we’ve already paid for it.  In fact, the Social Security Act was originally sold to Congress and the nation in 1935 not as a government benefit, but as a retirement savings program. Earlier this year, the Urban Institute published a study evaluating the program in this way, concluding that the average worker who retires today will withdraw from Social Security just about the same amount he put in over the years, with a modest 2% real interest rate (after inflation).

 

A deal is a deal.  We paid for it, we are owed it, and the U.S. government is good for it.  To change the terms of the deal ex post facto is both a breach of contract and a violation of the Constitution. 

 

Where to Get the Money: Ron Paul’s Creative Plan

 

A sovereign nation can always find the money to pay debts owed in its own currency.  The U.S. could, if it wished, pay its bills using debt-free U.S. Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War.  Alternatively, it could eliminate the deficit with Ron Paul’s plan, which amounts to the same thing.  As Stephen Gandel explains Paul’s solution in Time Magazine:   

 

In the last year or two the Fed has been buying up U.S. Treasury bonds in an effort to lower interest rates and boost the economy. The most recent round of that buying has been dubbed QE2, and has come under a good deal of criticism, though most economists agree that it was a generally helpful policy. The result is that the Fed now holds nearly $1.7 trillion in U.S. debt. But that is really phony debt. The Treasury pays the interest on the debt on behalf of the U.S. government to the Fed, which in turn returns 90 percent of the payments it gets back to the Treasury. Nonetheless, that $1.7 trillion in U.S. bonds that the Fed owns, despite the shell game of payments, is still counted in the debt ceiling number, which caps that amount of total federal debt at $14.3 trillion.

Paul's plan: Get the Fed and the Treasury to rip up that debt. It's fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed. A trillion and a half dollars is currently about what spending is expected to exceed tax revenue in 2011.

The biggest drawback to the plan, says Gandel, is just that it “looks bad.”  It looks as if the government is paying off its debts by printing money.  But that is what government-issued money is: a note acknowledging a debt due and owed from the public, good for an equivalent value from the public, traded in the marketplace.  A U.S. Note or Greenback and a Federal Reserve Note or dollar bill are both forms of promissory notes.  The government can as easily issue a dollar bill as a dollar note or a dollar bond, as Thomas Edison pointed out in the 1920s.    

 

The objection to that solution is that it would be inflationary, but as economist Richard Koo graphically demonstrates, the Fed’s quantitative easing has had virtually no inflationary effect on the money supply to date:

 

 

  

Misdirected Fed policy has instead caused $1.6 trillion in “excess reserves” to sit on bank balance sheets, as explained in an earlier article.  Conveniently, excess reserves can be used as collateral for futures and derivatives contracts, and that is what some banks appear to be doing with the money: backing trades in the financial markets.  This sort of speculation, involving money making money without increasing productivity, can and does drive up prices. 

 

If the money had been delivered directly to the government to be spent on the national budget, it might have gotten into the real economy where it could do some good.  The government’s budget is spent not on speculation but on goods and services.  Increased government “demand”  stimulates an increase in “supply,” causing supply and demand to increase together, avoiding price inflation while stimulating economic activity.    

 

Time to Close the Debt Ceiling Loophole

 

The debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers.  The gamblers lost their bets and were bailed out at the expense of the taxpayers; and if anyone should be held to account, it is these gamblers. 

 

The debt ceiling crisis is a manufactured one, engineered to extort concessions that will lock the middle class in debt peonage for decades to come.  Congress is empowered by the Constitution to issue the money it needs to pay its debts.  Abraham Lincoln did it; Barack Obama could do it.  He probably won’t, but he does need to follow his Constitutional mandate to pay the government’s bills as and when due.  The statute imposing a ceiling on the national debt is trumped by the Fourteenth Amendment, making it redundant and unnecessary.  The statute should be repealed.

 

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, 2011

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.


© 2005-2017 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

Catching a Falling Financial Knife