nodeficitproblem

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ignore 1), continue issuing debt and wait for the Courts to tell Congress that the debt ceiling is unconstitutional or superceded.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).