Social Security
By Ellen Hodgson Brown, TruthOut.org
Posted on March 5, 2010, Printed on March 6, 2010
http://www.alternet.org/story/145896/
In addition to mandatory private health insurance premiums, we may soon be
hit with a "mandatory savings" tax and other belt-tightening measures urged
by the president's new budget task force. These radical austerity measures
are not only unnecessary, but will actually make matters worse. The push for
"fiscal responsibility" is based on bad economics.
When billionaires pledge a billion dollars to educate people to the evils of
something, it is always good to peer closely at what they are up to. Hedge
fund magnate Peter G. Peterson was formerly chairman of the Council on
Foreign Relations and head of the New York Federal Reserve. He is now senior
chairman of Blackstone Group, which is in charge of dispersing government
funds in the controversial AIG bailout, widely criticized as a government
giveaway to banks. Peterson is also founder of the Peter Peterson
Foundation, which has adopted the cause of imposing "fiscal responsibility"
on Congress. He hired David M. Walker, former head of the Government
Accounting Office, to spearhead a massive campaign to reduce the runaway
federal debt, which the Peterson/Walker team blames on reckless government
and consumer spending. The Foundation funded the movie "I.O.USA." to amass
popular support for their cause, which largely revolves around dismantling
Social Security and Medicare benefits as a way to cut costs and return to
"fiscal responsibility."
The Peterson-Pew Commission on Budget Reform has pushed heavily for action
to stem the federal debt. Bills for a budget task force were sponsored in
both houses of Congress. The Senate bill was narrowly defeated, and the
House bill was tabled; but that was not the end of it. In Obama's State of
the Union speech on January 27, he said he would be creating a presidential
budget task force by executive order to address the federal government's
deficit and debt crisis, and that the task force would be modeled on the
bills Congress had failed to pass. If Congress would not impose "fiscal
responsibility" on the nation, the president would. "It keeps me awake at
night, looking at all that red ink," he said. The executive order was signed
on February 17.
What the president seems to have missed is that all of our money except
coins now comes into the world as "red ink," or debt. It is all created on
the books of private banks and lent into the economy. If there is no debt,
there is no money; and private debt has collapsed. This year to date, US
lending has been contracting at the fastest rate in recorded history. A
credit freeze has struck globally; and when credit shrinks, the money supply
shrinks with it. That means there is insufficient money to buy goods, so
workers get laid off and factories get shut down, perpetuating a vicious
spiral of economic collapse and depression. To reverse that cycle, credit
needs to be restored; and when the banks can't do it, the government needs
to step in and start "monetizing" debt itself, or turning debt into dollars.
Although lending remains far below earlier levels, banks say they are making
as many loans as they are allowed to make under existing banking rules. The
real bottleneck is with the "shadow lenders" - those investors who, until
late 2007, bought massive amounts of bank loans bundled up as "securities,"
taking those loans off the banks' books, making room for yet more loans to
be originated out of the banks' capital and deposit bases. Because of the
surging defaults on subprime mortgages, investors have now shied away from
buying the loans, forcing banks and Wall Street firms to hold them on their
books and take the losses. In the boom years, the shadow lending market was
estimated at $10 trillion. That market has now collapsed, leaving a massive
crater in the money supply. That hole needs to be filled and only the
government is in a position to do it. Paying down the federal debt when
money is already scarce just makes matters worse. When the deficit has been
reduced historically, the money supply has been reduced along with it,
throwing the economy into recession.
Another Look at the Budget Reform Agenda
That raises the question: are the advocates of "fiscal responsibility"
merely misguided? Or are they up to something more devious? The president's
executive order is vague about the sorts of budget decisions being
entertained, but we can get a sense of what is on the table by looking at
the earlier agenda of Peterson's Commission on Budget Reform. The
Peterson/Walker plan would have slashed social security entitlements at a
time when Wall Street has destroyed the home equity and private retirement
accounts of potential retirees. Worse, it would have increased the Social
Security tax, disguised as a "mandatory savings tax." This added tax would
be automatically withdrawn from your paycheck and deposited to a "Guaranteed
Retirement Account" managed by the Social Security Administration. Since the
savings would be "mandatory," you could not withdraw your money without
stiff penalties; and rather than enjoying an earlier retirement paid out of
your increased savings, a later retirement date was being called for. In the
meantime, your "mandatory savings" would just be fattening the investment
pool of the Wall Street bankers managing the funds.
And that may be what really underlies the big push to educate the public to
the dangers of the federal debt. Political analyst Jim Capo discusses a
slide show presentation given by Walker after the "I.O.USA." premier, in
which a mandatory savings plan was proposed that would be modeled on the
Federal Thrift Savings Plan (FSP). Capo comments:
"The FSP, available for federal employees like congressional staff
workers, has over $200 billion of assets (on paper anyway). About half these
assets are in special non-negotiable US Treasury notes issued especially for
the FSP scheme. The other half are invested in stocks, bonds and other
securities.... The nearly $100 billion in [this] half of the plan is managed
by Blackrock Financial. And, yes, shock, Blackrock Financial is a creation
of Mr. Peterson's Blackstone Group. In fact, the FSP and Blackstone were
birthed almost as a matched set. It's tough to fail when you form an
investment management company at the same time you can gain the contract
that directs a percentage of the Federal government payroll into your
hands."
What "Fiscal Responsibility" Really Means
All of this puts "fiscal responsibility" in a different light. Rather than
saving the future for our grandchildren, as the president himself seems to
think it means, it appears to be a code word for delivering public monies
into private hands and raising taxes on the already-squeezed middle class.
In the parlance of the International Monetary Fund (IMF), these are called
"austerity measures," and they are the sorts of things that people are
taking to the streets in Greece, Iceland and Latvia to protest. Americans
are not taking to the streets only because nobody has told us that is what
is being planned.
We have been deluded into thinking that "fiscal responsibility" (read
"austerity") is something for our benefit, something we actually need in
order to save the country from bankruptcy. In the massive campaign to
educate us to the perils of the federal debt, we have been repeatedly warned
that the debt is disastrously large; that when foreign lenders decide to
pull the plug on it, the US will have to declare bankruptcy; and that all
this is the fault of the citizenry for borrowing and spending too much. We
are admonished to tighten our belts and save more; and since we can't seem
to impose that discipline on ourselves, the government will have to do it
for us with a "mandatory savings" plan. The American people, who are already
suffering massive unemployment and cutbacks in government services, will
have to sacrifice more and pay the piper more, just as in those
debt-strapped countries forced into austerity measures by the IMF.
Fortunately for us, however, there is a major difference between our debt
and the debts of Greece, Latvia and Iceland. Our debt is owed in our own
currency - US dollars. Our government has the power to fix its solvency
problems itself, by simply issuing the money it needs to pay off or
refinance its debt. That time-tested solution goes back to the colonial
scrip of the American colonists and the "Greenbacks" issued by Abraham
Lincoln to avoid paying 24-36 percent interest rates.
Economic Fear Mongering
What invariably kills any discussion of this sensible solution is another
myth long perpetrated by the financial elite - that allowing the government
to increase the money supply would lead to hyperinflation. Rather than
exercising its sovereign right to create the liquidity the nation needs, the
government is told that it must borrow from private lenders. And where does
their money come from? Ultimately from banks, which create it on their books
just as the government would have done. The difference is that when bankers
create it, it comes with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money supply;
and rather than producing hyperinflation, we continue to suffer from
deflation. Frantically pushing money at the banks has not gotten money into
the real economy. Rather than lending it to businesses and individuals, the
larger banks have been speculating with it or buying up smaller banks, land,
farms and productive capacity, while the credit freeze continues on Main
Street. Only the government can reverse this vicious syndrome, by spending
money directly on projects that will create jobs, provide services and
stimulate productivity. Increasing the money supply is not inflationary if
the money is used to increase goods and services. Inflation results when
"demand" (money) exceeds "supply" (goods and services). When supply and
demand increase together, prices remain stable.
The notion that the federal debt is too large to be repaid and that we are
imposing that monster burden on our grandchildren is another red herring.
The federal debt has not been paid off since the days of Andrew Jackson and
it does not need to be paid off. It is just rolled over from year to year,
providing the "full faith and credit" that alone backs the money supply of
the nation. The only real danger posed by a growing federal debt is an
exponentially growing interest burden; but so far, that danger has not
materialized either. Interest on the federal debt has actually gone down
since 2006 - from $406 billion to $383 billion - because interest rates have
been lowered by the Fed to very low levels.
They can't be lowered much further, however, so the interest burden will
increase if the federal debt continues to grow. But there is a solution to
that too. The government can just mandate that the Federal Reserve buy the
government's debt and that the Fed not sell the bonds to private lenders.
The Federal Reserve states on its web site that it rebates its profits to
the government after deducting its costs, making the money nearly
interest-free.
All the fear mongering about the economy collapsing when the Chinese and
other investors stop buying our debt is yet another red herring. The Fed can
buy the debt itself - as it has been stealthily doing. That is actually a
better alternative than selling the debt to foreigners, since it means we
really will owe the debt only to ourselves, as Roosevelt was assured by his
advisers when he agreed to the deficit approach in the 1930s; and this
debt-turned-into-dollars will be nearly interest-free.
Better yet would be to either nationalize or abolish the Fed and fund the
government directly with Greenbacks as President Lincoln did. What the Fed
does the Treasury Department can do, for the cost of administration. There
would be no shareholders or bondholders to siphon earnings, which could be
recycled into public accounts to fund national, state and local budgets at
zero or near-zero interest rates. Eliminating debt service payments would
allow state and federal income taxes to be slashed; and the public managers
of this money, rather than hiding behind a veil of secrecy, would be opening
their books for all to see.
A final red herring is the threatened bankruptcy of Social Security. Social
Security cannot actually go bankrupt, because it is a pay-as-you-go system.
Today's social security taxes pay today's recipients; and if necessary, the
tax can be raised. As Washington economist Dean Baker wrote when President
Bush unleashed the campaign to privatize Social Security in 2005:
"The most recent projections show that the program, with no changes
whatsoever, can pay all benefits through the year 2042. Even after 2042,
Social Security would always be able to pay a higher benefit (adjusted for
inflation) than what current retirees receive, although the payment would
only be about 73 percent of scheduled benefits."
Today, incomes over $97,000 escape the tax, disproportionately imposing it
on lower income brackets. Projections over the next 75 years show that just
removing that cap could eliminate the forecasted deficit. When the
Democratic presidential candidates were debating in the fall of 2007, Barack
Obama and Joe Biden were the only candidates willing to seriously consider
this reasonable alternative. President Obama just needs to follow through
with the solutions he espoused when campaigning.
The Mass Education Campaign We Really Need
What is really going on behind the scenes may have been revealed by Prof.
Carroll Quigley, Bill Clinton's mentor at Georgetown University. An insider
groomed by the international bankers, Dr. Quigley wrote in Tragedy and Hope
in 1966:
"[T]he powers of financial capitalism had another far-reaching aim,
nothing less than to create a world system of financial control in private
hands able to dominate the political system of each country and the economy
of the world as a whole. This system was to be controlled in a feudalist
fashion by the central banks of the world acting in concert, by secret
agreements arrived at in frequent private meetings and conferences."
If that is indeed the plan, it is virtually complete. Unless we wake up to
what is going on and take action, the "powers of financial capitalism" will
have their way. Rather than taking to the streets, we need to take to the
courts, bring voter initiatives and wake up our legislators to the urgent
need to take the power to create money back from the private banking elite
that has hijacked it from the American people. And that includes waking up
the president, who has been losing sleep over the wrong threat.
Ellen Hodgson Brown's latest Book is "Web of Debt."
© 2010 TruthOut.org All rights reserved.
No comments:
Post a Comment