Debtor Nation at Red Alert

http://www.alternet.org/story/23195/

If Democrats can link our spiraling personal and public debt to Republican economic policies, they might be able to head off a looming economic disaster -- and make some gains at the polls.

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It is a dark wonder that one of the gravest threats to our economy, rising debt --and I mean tons of debt, mountains of debt at every level--is an issue so rarely discussed in polite company. Perhaps the silence is due to the stigma attached; in a country where we're told boundless opportunities exist and unfettered "economic freedom" is the name of the game, failure to keep your head above water is damning evidence of an individual's lack of worth.

But while there's shame attached to our private debt-- over a third of Americans filing for bankruptcy have had to deal with the humiliation of having their electricity or telephone cut off--our elected officials in Washington shamelessly continue to pile up public debt of stunning proportions.

Most people fail to see that the sources of public and private debt are the same, or how the two are bound together by public policy. But if progressives can make those connections in the mind of the public, they'll have a real opportunity to show just how powerful and pragmatic liberal values really are.

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According to PBS' "Now," personal bankruptcy filings increased 320 percent between 1980 and 2004. As I'm writing this, a baby born in America owes $26,000 dollars worth of national debt. Students graduate today with an average of over $20,000 in student loans and credit card debt, and those who borrowed to pay for a graduate degree come out of school with a median debt of almost $46,000 dollars--up 72 percent since 1997 according to Brendan Koerner, a fellow at the New America Foundation.

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You put these issues on a bumper sticker by talking to the public about things like Paygo. It's time that we heard more from the campaign trail about how a rising deficits represent a "baby tax," about the squeeze that debt loads are putting on the middle class and about the predatory schemes of lenders serving "subprime" (read poor, minority) borrowers. It's time someone talked about the fact that the administration rejects rules to keep government honest while it's working overtime to prevent families from getting out from under their private debt. It's a question of values, and it needs to be dragged out of the shadows and into the light of public discourse.

-MORE-

watch while Lady Liberty get rape by this evil bunch.

unaffected.The middle class should be called the synthesis class.

:wtf: How can anyone NOT see that its' a direct result of republican policies. Bush's tax cuts for the rich, uncontrolled corporate welfare, and his nebulous "war on terror" are burying this country under a mountain of debt. IF They can tie it to Republicans? Only a complete idiot would not tie it to them. Conservatives, my ass. These borrow and spend Slugs are far worse than any "tax and spend" Democrat. At least we weren't running the country into the ground.

Do you see a theme, here?

(I plotted the "official" data from the treasury dept.)

Walter Mondale stated during his presidential campaign that he would raise taxes because he thought the revenue was necessary. He lost.

George H.W. Bush proclaimed, "Read my lips. No new taxes!" He won. He then put Mondale's program into action and lost the love of the American public and was a republic flip-flopper.

I can't imagine how the democrats are going to package the proposal of individual Americans giving up even a little prosperity for the common good. And if they try to tie this economic morass to the republicans, true as it is, they can expect a prepared ad hominem attack on the party, not the issue ("There they go again, blame the republicans when the democrats have run out of ideas decades ago.").

We need to have "independent" voices like a coalition of economists, professors, chambers of commerce, Kiwanis clubs, etc. advocate this issue. And let the democrats join them in support.

Either that or the dems better get a New Deal II ready for the next Depression.

HW Bush put this country into deep debt even with his raised tax revenues because of all the scam ripoffs(savings&loan?) he and his Republican crony criminals pulled off while he was in power.

I've read that Alan Greenspan kept interest rates high at the end of his tenure to insure that the recession would be prolonged and that he would therefore not be reelected because of the fraudulent excesses.

This is the country's main business, a Ponzi scheme.

I read a site that appealed to my monetary wishes. I've seen similar proposals written by progressives, but this one is particularly well developed.

The theory is that we, the USofA, should stop going into debt in order to allow the Fed to print money . . . debt free money, if you will.

There are two 'evils' to our system: debt-backed paper money, and fractional reserve banking.

Originally, trade required barter, and a concurrent coincidence of wants. You had to want my chicken and I had to want your wheat, at the same time and place. Then we figured that small, valuable items really enhanced our barter. Bits of shiny metal served as an item of trade. We called them coins, or money, but it was really just barter.

Eventually, we kept our valuable coins at a reliable person's vault: he then issued a receipt for that metal. We then figured out that using these receipts as money was easier than carrying around a bunch of metal. That reliable person figured out that he could issue reciepts for metal he didn't have in his vault. He only had to have a fraction of the metal for which he had written receipts.

For many years, central banks issued notes that were backed by metal - you could go to the bank, and insist on your pound of silver. Limiting our money supply to a metal limits our economy. We eventually wised up and quit backing our money with metal. Strangely, we decided to back our paper money with more paper; a redundant system at best. Unfortunately, the paper backing our money pays interest. Oddly, when the money is issued, it calls for interest payments that must necessarily be made with existing money -- money that has it's own interest obligations. This creates a vicious cycle, where those who must pay the debt (taxpayers) must clamor and compete for money that just isn't there. Another oddity associated with our debt-backed monetary system is that paying off our debt would eliminate our money supply.

So, back to the proposal at hand. Instead of issuing Treasury paper to the Federal Reserve, who prints Federal Reserve Notes (Dollar Bills), and who collects interest from the Treasury paper, we should eliminate the Fed and allow the Treasury to issue it's own Treasury Notes (Dollar Bills), without incurring additional debt.

This is exactly how our Mint works, but the value of coins in circulation is infetesimal when compared to the money supply. But, through the process of seignorage, each quarter minted costs ~$0.01, but brings $0.25 of revenue to the US Government. A similar process could be used for paper: a $100 or even $10,000 bill costs the same to print as a $1 bill - that is, almost nothing.

The problem with just printing money, is the risk of inflation. Our money supply grows every year, and is not necessarily inflationary. It's not inflationary if the growth in demand for money exceeds the growth in money supply. Tight (constitutional?) controls would have to regulate exactly how much money the Treasury was allowed to create.

Currently, money is created when a bank makes a loan. Since they are allowed (everywhere in the world) to maintain deposits that are only a fraction of their obligations, they literally make money with loans. A bank with $1 Million in deposits can typically issue $10 Million in loans: new money that gets deposited in other banks, who then make their own new loans. This is why artificially low interest rates tend to be inflationary - more money is in circulation chasing a constant amount of goods.

Conveniently, our current public debt is roughly the same size as the bank-created money, around $7T. The proposal is to 1) begin issuing debt free money and 2) eliminate bank's right to fractional reserve banking. As reserve requirements are brought from 10% to 100%, new money would be issued to purchase US Debt obligations. When the process is done, banks would have all of their demand deposits backed with Treasury-issued cash, and the US debt would be paid off.

The tradeoff would be that future bank accounts would probably require a service fee, instead of paying interest.

Interest bearing accounts would have to be non-bank accounts: they'd have to be non-insured, non-deposit, capital-risking, investments.

Anyway, to the best of my knowledge, it's a feasible way of eliminating public debt, and of raising federal revenue. The total swing in government funding is about $500B a year, combined from an elimination in debt payments, and the addition of printed money seignorage. Conveniently, this is roughly the size of our annual deficit.

and we see what happened to him.

The "Creature from Jekyll Island" will always kill off anyone who messes with it.

wasn't quite as broad or deep as this, but yes, he allowed the issue of silver-backed dollars i believe.

And while I'm a big fan of conspiracy theories, I don't think that his EO was what got him assassinated.

Printing money to solve the national debt sounds like a pain free why to resolve the problem of the fiscal irresponsibility of our government, but its not realistic. Printing money to cover debts historically leads to hyper inflation.

What you are essentially proposing is giving the government 1/2 trillion of printed money to inject into the economy. Addition of 1/2 trillion new money in an 11 trillion economy would have *huge* inflationary consequences. And it still wouldn't solve the debt problem. The government owes 8 trillion and is adding another $600 billion in debt a year.

And as you point out, money supply isn't controlled by printing money anyway, but by short term credit rates at Fed member banks.

One of the smartest things our government ever did was to separate control of monetary policy (the Fed) from those with fiscal policy (the Congress/President). Giving monetary policy authority back to the executive (or the legislature) would probably be an utter disaster. Our government can't even control its fiscal policy. It has to borrow about 1/3 of the money it expends each year. Why should we put control of monetary policy in their hands? While poor fiscal policy can mess things up, poor monetary policy can *really* be a disaster. Check the experiences of countries like Argentina if you want a case history of a country that just printed more money.

I'm a big believer in TANSTAAFL, but you missed the money that would be removed from circulation as the Treasury printed notes. $7T new notes less $7T deposit created money removed by the prohibition of fractional reserve banking. The prohibition is the 'payment' for 'lunch' - risk-free interest bearing deposits would be a thing of the past (though risk-free vault deposits would remain, as would interest-bearing investments)

Thereafter, annual money growth would be due to still more new notes each year (about 1/4 Trillion dollars - the other 1/4 Trillion is due to the elimination of debt service).

Ideally, the new money would be printed to maintain a stable price index, perhaps a basket of manufactured and processed commodities.

Next best choice would be to print a fixed percentage of existing money supply, or even a fixed dollar amount - fixed preferably by Constitutional Amendment.

Hyperinflation is due to rapid increase in money supply by any means, not necessarily by the means in which the supply is increased.

Personally, I think it would work a lot better if we had a conservative government (ie one that could balance its budget).

A balanced budget eliminates the ability to perform Keynesian economic maneuvers, or at least makes is harder to do so.

A completely balanced budget, where we eventually paid off our debts, would eliminate our money supply - our money currently requires the creation of debt to exist, and the elimination of said debt would nearly eliminate our money.

Fix that problem and things should get better.

If that problem were fixed, it would be possible to stockpile money in thick years for spending in thin years, while maintaining a balanced budget.

"A completely balanced budget, where we eventually paid off our debts,..."

A balanced budget -> revenues = expenditures. With 8 trillion in debt, we need surplus budgets to pay down the debt.

"...would eliminate our money supply - our money currently requires the creation of debt to exist, and the elimination of said debt would nearly eliminate our money."

The debt of the US government has nothing to do with the money supply, except as a function that the government's demand for credit makes credit less available (more expensive) for other users of credit. How could elimination of the government debt "nearly eliminate" the supply of money?

"A balanced budget eliminates the ability to perform Keynesian economic maneuvers, or at least makes is harder to do so."

True, under Keynesian theory there are some situations were *temporary* deficits are thought beneficial as a stimulus, but there in nothing in Keynesian theory that suggests you should be running perpectual deficits in the neighborhood of 1/3 of government expenditures. Quite the contrary.

Today, Bush said the numbers are getting smaller! Does he think we need more tax cuts??
(Yep. That's how we balance the budget -- cut everyone's taxes?)

Sorry for these big posts, but I think this "secret" needs to be exposed.






Is this Enron, part 2?

It is true that there was never a "balanced budget" during Clinton's term looking at fiscal years. In FY2000, the government borrowed about $20 billion. That fiscal year ended Sep 2000.

But if you look at the total debt numbers for calendar years, in the last calendar year Clinton was in office, the total debt actually went down by more $100 billion.

Total debt:

12/31/99: $5,776B
12/31/00: $5,662B

Source: Dept of Treasury.

For that one brief shining, miraculous point in history, we actually had a year where the US debt started to be paid down.

Then Mr. Bush took office in Jan 2001.

Every fiscal year has ended with an increase in debt since before 1960. You are right that there were a few "brief moments" during the end of the year where the debt was (barely) lower than 365 days earlier.

But, technically, there was no budget surplus -- as the "budget" year runs from October 1 throught September 30.

Thanks for caring!

PS You may notice that I don't call it "deficit," but annual increase in debt. I have a daily plot of this that I watch, and it sounds like you do, too.

A deficit to me is what happens when outlays exceed revenues. Then the gov't has to borrow money. The amount of money borrowed reflects the true "deficit."

The administration says that the "deficit" might only be $325 billion this year only by employing bookkeeping tricks that would make an Enron accountant blush. They count over $150 billion of excess social security payments -- which are supposed to be in a trust fund for help pay future SS obligations -- as general revenue. They don't count the outlays for the Iraqi and Afganistani wars in figuring the deficit. Shoot, I suspect that Bush will take military expenses are "off-budget" and then claim he actually "balanced" the budget!

Notice the kink in the curve -- just about the time Bush took over.



The good news is that it's stopped getting worse since mid October 04.

.... long before terrorism will.