Treasury

Bernie: YOU Stop Caving to Peterson/Obama/#supercommittee

Joseph M. Firestone — Sun, 20 Nov 2011 13:00:44 -0500

Dear Bernie,

Today, you told the “Democrats stop caving in . . . ” to the interests of corporations, the tea party, wealthy individuals, and the Republicans in Congress. The only problem with your fiery statement is that you began it by “caving in” to them yourself. You did this by immediately legitimizing their frame of reference by saying:

“Here is something we all can agree on: Federal deficits are a serious problem.”

I'm sorry Bernie, we can't all agree on that, because it's just not true, and it's what the Republicans, the Blue Dogs, most Democrats and the Administration are all using to try to bully you and us into agreeing to spending cuts in key discretionary programs and programs like Social Security and Medicare, and also into not moving for more spending on jobs, better entitlement programs, including Medicare for All, and better discretionary programs we need to solve our many national problems.

The idea that Federal deficit spending is a serious problem is the idea, that along with the belief that the Federal debt is getting to be some kind of irresolvable problem, is in back of the whole anti-deficit/debt thrust of the deficit terrorists like Pete Peterson, David Walker, Alice Rivlin, and all the others in Washington including the President. In turn, this thrust has led to the Bowles-Simpson Catfood Commission, and the current so-called supercommittee that you've been fighting so hard 'lo these past months, and the constant drum beat that “There Is No Alternative” (TINA) to deficit cutting.

So, when are you going to learn that the only way for you and us to end this fight and to win it, is to deny their basic premises and particularly their foundational idea that the United States of America, the issuer of its own non-convertible floating fiat currency, with no external debt payable in anyone else's currency, and the ultimate source of all US Dollars existing in the world, can run out of the money needed to continue to deficit spend, and to pay all its bills including the principal and interest on all its debts, as well as all Congressional appropriations you and your colleagues may choose to legislate?

You say that the deficit is a serious problem. But I think it's not a real problem at all for at least three reasons that refute TINA.

-- First, because nothing bad needs to happen if we continue to run deficits, as long as we don't do so after our economy is operating at full capacity. But we are very far from that state right now with between 25 – 30 million people wanting full time employment and not being able to get it. So, we can't have demand-pull inflation now. It's impossible.

-- Second, because it's the Congress that is constraining the Government from generating money for its debt repayment, or appropriated deficit spending using means other than taxing or borrowing, because Congress prohibits the Treasury from freely issuing Treasury Notes and also requires that it issue debt before it deficit spends, while at the same time imposing debt ceilings that interfere with borrowing to spend appropriations Congress has already made. So, there is no real problem because the constraints were made by Congress and can be lifted by it in a single afternoon, if it wants to.

There Is An Alternative (TIAA). And it is for Congress to stop requiring the Treasury to issue debt when it deficit spends, and to allow it instead to "mark up" its own accounts at the Fed when it needs to spend an already legislated Congressional appropriation, or to repay past debt and interest.

You should be making the truth of TIAA clear to the American people, Bernie, so that everyone knows that any shortage of money to spend is Congress's own fault, and that there is no debt/deficit problem in the sense of an inability to pay, or a need for China, Japan, or the bankers to lend the Government back the money the Government created in the first place, or a need to cut spending, or a need to raise taxes on anyone, or both, to avoid impending or future solvency.

But instead you're reinforcing their message that there is a serious deficit problem. Now that's what I call “loser liberalism,” Bernie.

-- And Third, there is no problem because even under current law, with its constraints on the Treasury's ability to spend what's required to repay debt or spend Congressional appropriations, it has been legal since 1996 for the Executive Branch to issue 1 oz. proof platinum coins having arbitrary face value in the amount of many Trillions of Dollars, deposit those coins at the Fed, and force the Fed to use its money-creating authority to credit Mint and Treasury Accounts with electronic credits equal to the value of the coin. The money placed in Treasury's accounts as a result of this action need not be spent. In fact, if the Executive minted a $60 T coin, then it could not all be spent because the authority for spending by the Treasury would not extend further than repayment of debt subject to the ceiling as it falls due, and payment implementing Congressional appropriations approved up to now.

So, even if such a coin were issued, spending by the end of the year would be limited to repayment of all intra-governmental debt, including all debt held by the Fed itself, and the Federal spending appropriated by Congress for the remainder of this calendar year. Most of the $60 Trillion would still remain unspent to be used for future debt repayment as the securities fall due, and payment for future Congressional appropriations that would not be covered by tax revenues.

As long as those appropriations don't outrun tax revenues more than is necessary to enable a full employment, full capacity utilization economy, no one has to worry about demand-pull inflation resulting from excessive Government spending. It won't happen. And if there is any inflation from other causes, which is possible, and even probable, if we don't prevent excessive commodity speculation through appropriate laws and their faithful enforcement, any cost-push inflation, won't have anything to do with Government spending.

You can find a more detailed explanation of this coin seigniorage idea and its implications here, here, here, and here. Without going into detail in this open letter, I'll just say that if the President uses coin seigniorage in the way I've outlined, he can fill the public purse with such a large volume of USD electronic credits that no one will be able to say, ever again, that the US has a deficit/debt problem because it is running out of money. And, additionally, in a very few years, the Treasury's payment of the Government's debts as they fall due, without any further debt issuance, to spend Congressional appropriations not covered by tax revenues or other sales, will result in most of the debt subject to the ceiling, except for long-term debt, being paid. There will be very low levels of debt subject to the ceiling and eventually no debt of this kind at all.

So, to summarize, it is not true that “. . . Federal deficits are a serious problem.” And it is not true that we have to do anything to reduce deficits defined as a gap between Federal spending and Federal tax revenues. The whole exercise in deficit reduction that the president and the other deficit terrorists have put this country through has been an immensely wasteful distraction.

As you say in your HuffPo piece:

“This is a pivotal moment in American history. The rich and large corporations are doing phenomenally well while the middle class is collapsing and poverty is increasing. Now is the time to answer the question that the Woody Guthrie song poignantly asked, "Which side are you on?" The Democrats must answer boldly that they are on the side of working families and the middle class and that they will fight to protect their interests.”

And you, Bernie, must also answer boldly with the truth. People who are on the side of working families and the middle class, like yourself, cannot continue to say that “we can all agree that there is a serious deficit problem”, because that has been the continuing most important element in the case the deficit terrorists are making.

To defend our ground, and the 99%, we need to deny and defeat that false framing. We cannot reinforce it! We need an alternative framing.

And that framing is, the Federal Government needs no money from anyone to pay its debts and to spend what Congress has appropriated. We are a fully sovereign nation, and as long at we retain that full sovereignty, including its fiscal aspects, the Government can spend/create any money it needs in accordance with the authority given to it by the Constitution of the United States. It is up to the Congress and to the Executive to use that authority as necessary to create and maintain full employment AND price stability, as well as all other aspects of the Public Purpose, as that purpose is defined and specified by the people of the United States of America.

Best,

Joseph M. Firestone, Ph.D.

President Obama: Stop Breaking the Law; Use Coin Seigniorage

Joseph M. Firestone — Wed, 18 May 2011 13:57:14 -0400

Yesterday, The United States actually ran over the debt ceiling of $14.294 Trillion by $50 Billion or so, which means that the Treasury has issued $52 Billion more in debt instruments than is allowed by Congress's debt ceiling, which, in turn, means that the current Administration stands in violation of the Law. In reply to this, some will say that the debt ceiling is unconstitutional so the President doesn't need to observe it. However, in the present context, I don't think that's true. Here's my argument.

1) Congress mandates a debt ceiling that Treasury has now exceeded by $52 Billion. So Treasury is currently in violation of the law unless the law in question is unconstitutional.

2) Congress also mandates that all deficit spending must occur after bonds are issued to "make room" for the spending.

3) Congress also prohibits the Federal Reserve from letting Treasury run a negative balance in its account, which is probably just a function of 2).

4) The Constitution (14th Amendment section 4) prohibits anyone from questioning the validity of debts of the United States. In Perry v. United States (1935) the Supreme Court ruled, based on section 4, that voiding a United States government bond is beyond the power of Congress.

Yet another argument that might be applied in this case is based on the idea that the Congressional appropriations providing for Treasury's spending were passed after the current debt ceiling. Since later laws supercede earlier ones, it follows that legislation appropriating Treasury spending supercedes Congress's earlier passage of the debt ceiling.

5) If only 1-4 applied, then 1) would be either unconstitutional or supercede by later law, and the Executive could ignore 1), continue issuing debt and wait for the Courts to tell Congress that the debt ceiling is unconstitutional or superceded.

6) However, the context includes more than 1) -- 4). It also includes the authority for the Executive to employ jumbo coin seigniorage to replenish the Treasury General Account at the Fed and pay all of the obligations of the United States without issuing more debt or even, technically, any more “deficit spending.” As beowulf puts it:

The Secretary has rather broad authority to mint coins, Congress was apparently feeling generous when it authorized platinum coins in 31 USC 5112(k) (“with such specifications, designs, varieties, quantities, denominations, and inscriptions and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe…”). If deficit spending was paid for (eliminated actually) with miscellaneous receipts revenue generated by selling the Fed jumbo denomination coins, and since the Federal Fund Rate can now be pegged with Interest on Reserve payments in lieu selling Treasuries to drain excess reserves, Tsy could fund govt operations indefinitely without ever raising the statutory debt limit.

Beowulf might also have pointed out that national debt can eventually reduced to near zero with the constant use of coin seigniorage. Details of how coin seigniorage would work with citations to legal issues involved are in beowulf's post; and an outline of steps in a procedure is in my recent post.

7) So, since the Executive has a way of paying all obligations without deficit spending by using coin seigniorage and its Constitutional duty is to uphold both the Constitution and the laws of the United States, it follows that the Executive must immediately end its violation of the law, and use coin seigniorage to replenish the TGA as necessary to implement all the spending appropriations passed by Congress and all the previous obligations of the United States.

What else is there to say? The President has no choice in this matter. Congress has appropriated money for particular purposes. It has also passed a debt ceiling, and passed a law providing the Administration authority to engage in jumbo coin seigniorage to get revenue necessary to spend appropriations in the presence of the debt limit. The President is also bound to uphold the Constitutional prescription that no one may question the validity of the debts of the United States, which certainly also implies, in the context of the debt ceiling, that it is the obligation of the President to remove any basis for such questioning by using the authority granted to him to raise all revenue necessary to spend Congressional appropriations. So, what is he waiting for? He should move back into compliance with the Law by immediately using jumbo coin seigniorage, while ignoring the inevitable teeth gnashing by those holding the nation hostage!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Bernie Says: “. . . We're Tired of Bullying . . .”

Joseph M. Firestone — Sun, 15 May 2011 18:44:23 -0400

Visit msnbc.com for breaking news, world news, and news about the economy

An Open Letter to Bernie

Dear Bernie,

If you're really tired of the bullying then I think you need to stop believing in and start denying the basic premise the Republicans, the Blue Dogs, most Democrats and the Administration are all using to bully you and us into agreeing to spending cuts in key discretionary programs and entitlement programs, and also into not moving for more spending on jobs, better entitlement programs, including Medicare for All, and better discretionary programs we need to solve our many national problems. That premise is that the United States of America, the issuer of its own fiat currency, and the ultimate source of all US Dollars can run out of the money needed to continue to deficit spend and to pay its bills.

Of course, this can't happen Bernie, as long as the Congress doesn't constrain its own constitutional authority to spend by committing to legislation that limits its scope. Right now, Congress is doing that, however.

The requirement that Treasury issue debt before it deficit spends is mandated by Congress, and conflicts somewhat with previous Congressional appropriations creating spending authority. The debt ceiling is another mandate of Congress that conflicts with previously passed spending authority in a very direct way. Making the Federal Reserve Board of Governors an independent agency, rather than an agency under the Treasury Department, constrains the spending power of the Treasury beyond the limits provided by Congressional appropriations themselves.

These constraints, however, are political, not economic. If Congress removes even one of them, then the Federal Government can never run out of money already appropriated by Congress. Even with all three limitations, the Federal Government still cannot run out of money, if the Administration is willing to uphold the Constitution and exercise the full authority to coin money that Congress has granted to the Executive. Where the constitution comes in is that Section 4 of the 14th Amendment doesn't allow the US Government to default on any of its obligations. So, constitutionally, Congress should not be playing games with the full faith and credit of the United States.

Apart from that however, the Executive has sworn to uphold the Constitution, and the Treasury has authority, granted by Congress in the 1990s, to mint platinum jumbo coins with arbitrarily large face values. So, rather than run out of money when it reaches the debt limit the Government can mint however much it needs to implement Congressional appropriations without either taxing or borrowing. You can find a more detailed explanation of this coin seigniorage idea here and here. Without going into detail in this open letter, I'll just say that if the President uses coin seigniorage to meet the debt ceiling crisis, all the Republican's power to bully and hold the Government hostage will be gone outside of the context of the appropriations process itself. We would have “an end to bullying.”

So, if you really want to end it, please call the President's attention to this post and the links I've provided, and point out to him and anyone else who will listen, that he can make the bullying stop, anytime he wants to

Best,

Joseph M. Firestone, Ph.D.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Gallup Scores Another for the Plutocracy

Joseph M. Firestone — Fri, 13 May 2011 15:14:29 -0400

I don't really mean to single out Gallup here. Well, I guess I do; but they're certainly not the only guilty party in the polling industry of doing what I'm about to rail against. Let's begin by stipulating that public polls cannot escape ideological and selection biases in how they frame questions and alternative closed end response choices. Nevertheless, if poll results are to be considered even minimally descriptive of public opinion, they must make a concerted effort to include multiple frames and not exclude response choices that go beyond the dominant ideology. After all what good are polls that channel opinion in pre-determined directions compared to those that allow respondents to express their own tendencies?

Gallup provides a great illustration of illegitimate channeling and ideological bias in its recent poll (April 20-23. 2011). The poll included two questions:

Which do you think is more to blame for the federal budget deficit—[ROTATED: spending too much money on federal programs that are either not needed or wasteful, (or) not raising enough money in taxes to pay for needed federal programs]?

There were three response choices associated with this question:

-- Spending too much on programs;

-- Not raising enough money on taxes

-- No opinion

Of course, the word “blame” in the question assumes that the Federal deficit is a negative and a problem that something should be “blamed” for. Not everyone feels that way. I, for example, think that the deficit is no problem at all, but simply a consequence of the Crash of 2008, and that most of it will go away when we fully recover, which we do not have a large or effective enough deficit to do (yes, I'm assuming that deficits if comprised of effective spending do cause recoveries).

How many people don't think the deficit is a problem? 5%, 20%, 40% Well, probably not 40%; but, if you began polling on the deficit by asking whether people thought it was a serious problem, compared to others that will require deficit spending to solve, you'd probably find that only a minority felt that cutting the deficit was more important than solving the problems that will require continuing or expanding the deficit. When Gallup failed to ask this question first, it destroyed much of the value of its polling results, since, for example, if only 15% of people prioritize doing something about the deficit over solving other problems, then it's not very important whether they, hypothetically, prefer to raise taxes or cut spending in order to cut that deficit?

So, the framing of Gallup's question immediately reduces the usefulness of the results and also channels the reporting in a fictitious context where everyone believes that we must cut the deficit as our highest priority. Apart from the initial framing however, the response choices of raising taxes or cutting spending, simply reinforce the conventional wisdom about the choices available to reduce the deficit, and they ignore another choice, but that Gallup and most of the public has never heard of. That choice is using coin seigniorage to either reduce or eliminate the deficit and the national debt. Coin seigniorage could have been included in the question in this way: “Not using minting of jumbo platinum coins, as authorized by Congress to create enough revenue to reduce or eliminate the deficit.” That's all it would have taken to have given the public another choice in order to find out whether people would be willing to place “the blame” on something else apart from the conventional two options.

There's still another framing issue present in Gallup's formulation of the first question. The question asks people what is more to blame for the Federal deficit. It could have asked what is more to blame for “the national debt.” Which would have been more relevant? Do people care more about the deficit or do they really just care about the national debt, or neither?

Had the question been asked about the national debt, then the alternatives would have been different. In addition to the raising taxes, cutting spending, and coin seigniorage, explanations, there's a fourth explanation: namely that Congress requires the Treasury to issue debt when it deficit spends. Perhaps, we might have had a poll that looked entirely different if the question had focused on the national debt and also included these four things for people “to blame.”

Gallup's second polling question on the deficit reads:

As you may know, Congress can reduce the federal budget deficit by cutting spending, raising taxes, or a combination of the two. Ideally, how would you prefer to see Congress attempt to reduce the federal budget deficit – [ROTATED: only with spending cuts, mostly with spending cuts, equally with spending cuts and tax increases, mostly with tax increases, (or) only with tax increases]?

and the response choices were:

-- Only with spending cuts;
-- Mostly with spending cuts;
-- Equally with spending cuts and tax increases;
-- Mostly with tax increases;
-- Only with tax increases;
-- Other (vol.)
-- No opinion

Of course analogous objections apply to this question and its associated response options as the ones I've already given for the first question. The question implies that only two things can be done about the deficit. But there are at least three. In excluding the third, coin seigniorage, Gallup has biased the results toward alternatives that fit the frames of neo-liberal economics, a paradigm that has resulted in increasing economic and political inequality over the past 40 years.

Notice that so far I've refrained from talking about the results of this poll. That's because I think the results are so biased that they provide no guide to divining the true state of American opinion on these subjects. The questions reflect only the neo-liberal elite perspectives that are rapidly marching us toward plutocracy. They don't tell us how people would feel if they were presented with a more objective framing associated with the policy choices that are possible rather than just the ones that the Congress and the MSM are talking about today.

Imagine, finally, if Gallup's poll had been focused on the national debt and had asked, first of all, if people felt that the national debt was a problem, and then offered all four of the “blame” and policy options for reducing the debt. I think the result of such a poll would have been far more illuminating and had much less ideological bias than we see in this poll. It's too bad that Gallup didn't incorporate the critical perspective and small amount of imagination necessary to take such a poll, because we badly need polling organizations like Gallup to serve us better, by not simply reflecting the frames of conventional wisdom, but also including options in its polls that reflect multiple perspectives.

This is a general problem. The MSM these days are locked into neo-liberal perspectives which provide none except painful solutions to our current problems. The polling organizations should be better than this. They should not reinforce the ideological shackles that have been forged for the American people. But should be more respectful of their founding notions about “a science of public opinion” and do what they can to reflect the true state of opinion in American.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Federal Spending Doesn't Cost Anything!

Joseph M. Firestone — Sat, 26 Feb 2011 15:54:19 -0500

Over the past year, I've written numerous posts about fiscal sustainability, fiscal responsibility, and the various fairy tales and myths underlying what almost all of our policy makers have to say Government finance. I continue to search for a meme that will catch fire and lead people to seriously question the false idea that the US can't: afford to put everybody back to work, see to it that all Americans have good health care; provide an excellent education for our children, reconstruct the energy foundations of our economy, re-invent our infrastructure, and take the measures necessary to solve our other major problems before they get any worse.

It's the idea that we can't afford to pay for many things that we would like to do, that makes it so hard to legislate solutions. With “the national debt” at the level that it is, many legislators who might normally do whatever they could to address our various problems just throw up their hands. The rhetoric of fiscal sustainability and fiscal responsibility is too powerful for them to oppose. They want to be “responsible.” They want to be “grown-up.” They want to be known as people who can make “tough decisions.” So, as long as they believe that Government spending costs something, and adds to a crushing debt burden that we have to do something about, they will not vote for effective measures that will solve our national problems because either the cost/debt implications of solutions involving additional deficits are too great, or the tax implications of matching the costs with additional revenue are a burden they are unwilling to face.

So, here I go again with another meme, namely:

Federal deficit spending costs the US Government no net financial assets

And by the way,

Tax cuts that increase deficits also cost the US Government no net financial assets

How can that be? Well the short answer is that the US Government, viewed from a holistic perspective (Congress, Treasury, the Fed, and their interactions with one another) has no limits in its ability to create financial resources. My friend Warren Mosler, who last week reminded me that payroll tax cuts really cost the Government nothing, a reminder that led to my writing this post, likes to say that the Government is like the scorekeeper in a game. Like the scorekeeper, it never runs out of points to give to the players in the economic game, if the rules of the game make it necessary to hand out points.

As it is with the scorekeeper, the Federal Government neither has nor doesn't have any points (or USD). What it has instead is the authority to create points (dollars) in the non-Government sector through spending, and also, in the Government's case, to destroy them (through taxing or selling debt instruments). These days when the Government creates dollars, it typically costs it virtually nothing, because it's done electronically; and that also holds true when it destroys dollars. Let's look at the process of how the Government deficit spends in a little more detail to see how this works out.

First, when the Government decides to deficit spend, the Treasury typically does that by instructing the Federal Reserve Bank (FRB, or the Fed) to markup the reserve account of the bank of the recipient of the spending, and to instruct the bank to credit the recipient's account. Since by law the Fed can't allow the Treasury to run an overdraft in the Treasury General Account (TGA), Treasury must anticipate such an overdraft, and, following Congressionally imposed constraints, must sell debt instruments (e.g. Treasury Bills) in an amount necessary to ensure that there is no overdraft. So, step one places a debt instrument in the non-Government sector, and removes USD from that sector by debiting the purchaser's account, and the reserve account of the purchaser's bank, crediting Treasury Tax & Loan Accounts (TT&L), and ultimately the TGA.

Second, in step 2, the Government spends and marks up the non-Government sector reserve accounts, causing the spending recipient's account to be credited. At this point, the Government has withdrawn dollars from the non-Government sector, while adding the same amount of dollars through its spending, along with its debt instrument. It therefore has added a net financial asset to the non-Government sector, namely its debt instrument, having a specific principal value. What cost has it incurred in order to do that and perform its deficit spending? The answer is, virtually nothing.

Third, when the debt instrument sold by Treasury matures, Treasury will have to pay the principal and interest to the holder of the instrument. This repayment will then involve an exchange of money in return for the debt instrument, that is, an exchange of one type of financial asset for another. This is very likely to involve deficit spending again, but the financial asset remaining after the next cycle of spending and debt issuance will be larger.

Fourth, however, there is another scenario involving debt instrument redemption, as well. In that one, the Federal Reserve decides to buy debt instruments from the public. Unlike the Treasury, however, the Fed can simply markup accounts within the banking system without itself issuing debt. It creates money “out of thin air” and increases the money supply. When this happens we can see the full pattern. The Government has deficit spent, added a financial asset to the non-Government sector, and eventually converted that financial asset back to money, leaving an increased money supply in the non-Government sector, absent off-setting taxes or additional debt issuance.

Again, what does it “cost” the Government to deficit spend in this way? Virtually nothing. Also, note that the “cost” involved in deficit spending is the same whether or not the deficit involved is caused by new tax cuts or by new spending. So, again, Federal deficit spending costs the US Government no net financial assets; and tax cuts that increase deficits also cost the US Government no net financial assets.

Reading this, some of you may react by saying that the pattern I've sketched out is dependent on the ability of the Treasury to sell its debt instruments, and may ask: what happens if prospective buyers, especially foreign nations won't buy our debt anymore? Well, that is extremely unlikely to happen, for reasons I've outlined here.

But if it does, then the Government has other ways of deficit spending at no cost to itself. Specifically, Congress can stop requiring Treasury to issue debt when it deficit spends, and just let Treasury spend by marking up accounts. I've discussed that alternative here. Also, Treasury can use coin seigniorage to ensure that the TGA never runs an overdraft. I've discussed that here. Finally, Congress can place the Fed under the Treasury where it belongs, and the Treasury would regain full authority to create the currency needed for deficit spending.

In short, the Government can always deficit spend at no cost to itself. So, the idea that it can't afford to spend what's necessary to solve our various problems is just false. It's a bad joke, a fairy tale, or a lie, depending on who's telling it. Government spending certainly has real costs in resources and human effort that need to be arrayed against the real benefits of Government spending. Also, if the Government spends money beyond the capacity of the economy to produce goods and services, its money can be used to buy, then too much spending can cause demand-pull inflation. But the US Government, unlike the rest of us, has no financial limitations, only real ones of the sort I've just listed. So, since Federal spending doesn't cost anything, let's start doing it to provide everyone who wants to work a job, and while we're at it, let's save those state jobs in Wisconsin and every other state, and put our ridiculously bloated, ineffective, murderous, and corrupt health insurance industry out of business by passing HR 676, Medicare for All.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).