This is the first of a number of posts on the Catfood Commission’s latest travesty: the Co-Chair’s Proposal. The proposal begins with statements about “Our Guiding Principles and Values.” I’ll analyze the first page in this statement of principles in this post.
1.We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today
— America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.
— Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America: to give our children and grandchildren a better life.
— American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.
No one disagrees that “We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today.” The question is always how we are going to do that, and since the beginning of the Catfood Commission, the over-riding issue has been whether we ought to take seriously its peculiar notions of fiscal responsibility and sustainability or whether we ought to view the Commission as a distraction from the real problem creating a sustainable, growing economy that will make all Americans better off than they are today. The Co-Chairman, don’t spend any time considering this question. Instead they assume that the notions of fiscal responsibility and fiscal sustainability underlying the Commission’s work are gospel and that nobody ought, for a minute, to question the validity of their whole endeavor. Yet they received testimony from authorities who questioned exactly that, and they provide no answer to those objections. In particular. Jamie Galbraith, certainly one of the world’s leading economists, following a comprehensive analysis of the Commission’s problems given in testimony, delivered this harsh indictment of the Commission’s activities:
“10. The Best Place in History (for this Commission) Would be No Place At All.
Most people assume that “bipartisan commissions” are designed to fail: they are given thorny (or even impossible) issues and told to make recommendations which Congress is free to ignore or reject. In many cases — yours is no exception — the goal is to defer recognition of the difficulties for as long as possible.You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.
Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all.”
And we would have been much better served if only the Co-Chairmen, Erskine Bowles and Alan Simpson had slipped away quietly into the night and not said anything at all, rather than telling us: “America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.” Why? Because America simply can’t “go broke,” if by that we mean that America can be forced into bankruptcy, rather than that Congress or other Government officials can be fooled into defaulting on US obligations because they do not understand how our system of fiat currency works.
The United States Government, unlike State and local Governments, most of the nations of Europe, and other foreign nations that peg their currencies to external currencies or that owe debts denominated in external currencies owes no debt in any foreign currencies, and has a non-convertible currency and a floating exchange rate. It also has unlimited constitutional authority to spend on programs, pay obligations, pay its debts, and simultaneously create non-Government sector financial assets (high-powered money). This means that the Federal Government never has any solvency risk. I repeat. THERE. IS. NO. SOLVENCY. RISK. for the US Government. It is a myth. A fable. A “deadly innocent fraud.”
We can’t go broke, Messrs. Erskine and Bowles, President Obama, media and cable talking heads, and Congresspeople, because our national debt in USD, or because our “debt-to-GDP ratio are “too high.” We can, however, go broke if we believe we’re broke so that we refuse to pay our debts, or we refuse to spend Government money to restore full employment, so that, over time, we destroy part of our productive capacity, and with it reduce our real wealth in goods and services.
The key here is that in a fiat currency system the amount of financial assets we have is a matter of our collective choice. We can increase or lower these assets at our political will. How these assets are distributed is also, in part, our choice. However, the amount and distribution of real wealth is only partly a matter of choice. Once we destroy real wealth by mis-managing our creation and destruction of financial assets, we cannot create more real wealth by fiat. We have to re-build, re-structure, and create new industries and new products and services.
The real danger in the Catfood Commission is not in its total failure. As Jamie Galbraith says, that would best for everyone. The real danger is in its possible success, and the possibility that it will impose on all of us a regime of austerity that will result in the continued destruction of real wealth in the private sector over a period of years.
I say “continued” here, because we are already suffering from the “austerian” outlook. Our President has been captured by it. That is one of the reasons why he limited the stimulus program to $800 Billion. It is why he insisted that health care reform cut the overall budget, when he could have supported Medicare for All and created 2.5 million jobs while solving the health care and health insurance problems. It is one of the reasons why he never tried to push through a second stimulus, and it is why he proposed the Catfood Commission in the first place.
Of course, since America can’t go broke, there is also no “debt burden,” in the sense that there are debts the US Government must pay that will require it to strain its financial capabilities, or impose any additional “burden” on our grandchildren. That is another myth.
It doesn’t matter how high the bond market interest rates go, the US Government will always be able to pay those rates just by marking up reserve accounts at the Federal Reserve to redeem its securities when these fall due. However, I’d be remiss not to mention here, that if big national debts and high interest bills bother people psychologically, then it is within the power of the Government and the Fed together to get rid of these debts entirely – while continuing as much deficit spending as we care to engage in. All that has to happen is for Congress to provide the Government with the authority to deficit spend without issuing new debt at all. This would result in the incremental eventual total repayment of the national debt, in reduction of the “interest” and “debt burdens” to zero, and also in a “natural interest rate of zero” for Federal funds. If we did that, then Bowles and Simpson wouldn’t have to worry about “crushing debt” on our grandchildren anymore. They wouldn’t have to worry about our owing anything to China or Japan anymore. And they wouldn’t have to worry about that “cancer” of debt that is eating America from the inside.
Let me tell you about that national debt that’s “eating us alive.” Every single dollar of the national debt, is a dollar of financial assets that has been provided to the non-Government sector by the Federal Government. That is, the Federal Government’s debt, is non-Government sector savings. Now let’s say we paid off that debt by creating Government surpluses and “applying it to the debt.” The only way to do that is to ensure that taxes exceed Government spending, which destroys private sector financial assets. If we kept doing that to pay off all the national debt, the result would be the destruction of $13 Trillion in financial assets, and we would experience the greatest depression in world history.
On the other hand, we can pay off the national debt by ceasing to issue new debt and by continuing deficit spending. If we did that, we’d be adding to private sector savings and also getting rid of that non-existent burden everyone is so worried about. Now, let’s see: on the one hand, we have the greatest depression in the history of the world. On the other, we have continued increases in private savings and a return to prosperity. What shoooould we do?
Bowles and Simpson say: ‘Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America: to give our children and grandchildren a better life.” Again, who could disagree with that? Too bad the real questions are always who will do the sacrificing to make our nation stronger, and what will we do to give our children and grandchildren a better life.
Bowles and Simpson, in the large, are saying that we should cut taxes for corporations and wealthy individuals and cut real benefits for most of the rest of the population and that this will give us a better life for our children and Grandchildren, and they say this is necessary because we are going broke. How ridiculous is this?
Our real problems in this country, are that we have been destroying real wealth by running our economy at less than 70% capacity, and that we have not been delivering real value to our people in the areas of Medical Care, Education, Energy, Climate Change, infrastructure, and too many other areas to enumerate. And, in addition, the biggest problem of all: we have been systematically creating so much economic inequality that it is threatening our most valued possessions — democracy and open society, which are evolving rather rapidly into a closed plutocracy in which people like Bowles and Simpson present policy proposals that will benefit only people like them as a “courageous” expression of the public interest.
But Bowles and Simpson are not “courageous.” They are self-aggrandizing unimaginative, and stupid skinflints, who know that fellow members of the elite of emerging plutocracy will reward them with beluga caviar Dom Perignon for their “courage” at Washington cocktail parties, while putting down the lack of self-discipline of hard working poor and middle-class people who are being pushed out of their homes by bailed-out banksters falsifying mortgage documents who have already cost them half the value of their real estate by crashing that market.
Bowles and Simpson also say: “American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.” I do expect our representatives, and also Bowles and Simpson to put politics aside. Not just Party Politics, but also Class politics.
Bowles and Simpson are engaged in class warfare, and they are trying to claim that they care only about the public interest. I’m afraid no one is fooled by their sanctimony. Working Americans have made hard choices for the past two years. Those choices are appropriate for them since they have lost jobs, wealth, health, and happiness to this recession. As a result, they have had to sacrifice to keep their heads above water. But the Government doesn’t have to “sacrifice” in order to spend, end the recession, and to help them restore their lives. It has all the capability it needs to do these things, and it has no solvency risk. It is a matter of choice, and, so far, our plutocratic representative have chosen to “dis-employ” many of us, rather than to end unemployment, for fear that their own financial assets might be harmed if full employment brings inflation.
What the Government needs to do is to add to private sector savings by spending money. And it is refusing to do that because of politics. Political cowardice is not the condition of people who have been advocating for ending unemployment, true universal health care, making the rich pay their fair share of taxes, and renewing our society in all its dimensions. Rather, both political cowardice and gross ignorance is what all our politicians are showing when they refuse to: end the Bush tax cuts for the wealthy, have the Federal Government provide a Federal Job Guarantee, provide revenue for the States so they can maintain public sector jobs, declare a payroll tax holiday until the economic crisis is over, create a 35 hour work week, and raise the minimum wage to $10 per hour. They’ve also shown cowardice when they wouldn’t create a finreg bill that would really solve the problem of too big to fail, or when they constructed a bailout for the insurance companies, instead of a solution that would provide excellent health care for Americans.
Bowles and Simpson have shown profound ignorance and incompetence in claiming that “we are running out of money” and have a “crushing debt burden.” This alone marks the Catfood Commission Co-Chairs as incompetent and unqualified. Both ought to resign forthwith. Neither of them should be allowed to serve in Government again, and frankly, their boss, who has also said that “we are running out of money,” should resign along with them, since without an understanding of how the US fiat currency system works, President Obama cannot possibly be competent to manage the Federal Government’s role in the Economy.
In fact, in constituting the Catfood Commission in the first place, the President, as John Chandley says, may have committed:
“. . . the worst strategic blunder by a Democratic President in our lifetimes. It’s almost impossible to calculate how much damage he may have done to the country in this single, foolish act. We have 15 million unemployed, millions undergoing bankruptcy and/or foreclosures, record poverty, state and local governments in budgetary collapse, services being slashed, teachers/firemen/police losing jobs — all of which could be prevented but will take more federal spending because that is the only place increased demand can come from. Yet the Deficit Commission focus will now be an unneeded obstacle to every proposed solution.
The only useful thing a responsible deficit commission might have done now is to debunk the falsehoods and hypocrisy of the deficit hysterics and faux deficit hawks. A truly responsible group might then have continued working, in public, to analyze long-run future budgetary issues. But they’ve not only failed to clarify the problems and debunk the myths; they’ve made public understanding worse. If they’d been commissioned by a successful corporation wanting to understand its future priorities, these folks would have been fired months ago.”
And, if they hadn’t been, so would the CEO who appointed them. Even though John Chandley labels the President’s act in appointing the Commission, a strategic blunder, he also says:
“The Catfood Commission is not merely a momentary distraction from what needs to be done; it is a calculated displacement — a cynically manipulated replacement of the right priorities with exactly the wrong ones. As long as Washington and the national media debate the details of budget reduction, it will be impossible to discuss what we need to do to put people back to work or even to ameliorate their suffering until the jobs and economic security return.”
But this also raises the possibility that the appointment of the Commission was not “a strategic blunder . . . “ by the President, but a deliberate act of obfuscation for the purpose of distracting the Congress and the people, from his own failure to revive the economy by reconstructing the FIRE sector, and using direct job creation. By the time the President appointed the Commission, he had already failed on the economy and he knew it. So, he tries to cloud the issues, to mollify the bond markets, to appeal to fiscal conservatives who don’t understand that every dollar in Government deficit spending is also a dollar added to private sector financial assets, and who also think that the Government is like a household, neglecting the fact that it is the maker of a nation’s currency, not the user of it, so that it has an unlimited amount of financial assets.
The sheer perfidy of this President is visible in every area he puts his fingers into. He never takes an honest direct approach. He lies to the public about what his real intentions are every step of the way. I have had enough of him. I now need him to resign! I hope others will join me in calling for his resignation.
(Cross-posted at FireDogLake and Correntewire).