What 'Fiscal Responsibility' and 'Austerity' Really Mean: Code Words for Delivering Public Monies into Private Hands and Raising Taxes on the Already-squeezed Middle ClassWhat “fiscal responsibility” really means is that, 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 U.S. 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. - Ellen Brown, Paying Down the Federal Debt When Money Is Already Scarce Just Makes Matters Worse, Web of Debt, March 2, 2010
Congress plans to slash social security 'entitlements' at a time when Wall Street has destroyed the home equity and private retirement accounts of potential retirees. Worse, they plan to increase 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 This added tax would be automatically withdrawn from your paycheck and deposited to a “Guaranteed Retirement Account” managed by the Social Security Administration.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. - Ellen Brown, Paying Down the Federal Debt When Money Is Already Scarce Just Makes Matters Worse, Web of Debt, March 2, 2010
Austerity measures are typically taken if there is a perceived threat that government cannot honor its debt liabilities. Such a situation may arise if a government has borrowed in foreign currencies which they have no right to issue or they have been legally forbidden from issuing their own currency.
In such a situation, banks may lose trust in government's ability and/or willingness to pay and refuse to roll over existing debts or demand exorbitant interest rates. Inter-governmental institutions such as the International Monetary Fund (IMF) typically come in and demand austerity measures in exchange for functioning as a lender of last resort.
When the IMF requires such a policy, the terms are known as 'IMF conditionalities'. Development projects, welfare, and other social spending are common programs that are targeted for cuts. Taxes, port and airport fees, and train and bus fares are common sources of increased user fees.
In many cases, austerity measures have been associated with short-term declines in standard of living until economic conditions improved and fiscal balance was achieved.
March 2, 2010
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.U.S.A.” 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.
Editor's Note: After applauding the passage of a bill in February 2010 to increase the federal debt limit by $1.9 trillion to $14.3 trillion, Congress wants to now reduce the federal debt. They increased the limit to fund the stimulus package, which in turn is funding their New World Order Agenda, and now they want to direct austerity measures at the people by cutting Social Security, Medicare and Medicaid, among other things.
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, U.S. 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 David M. Walker after the “I.O.U.S.A.” 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 U.S. 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 – U.S. 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% interest rates.
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. Borrow from whom? From the bankers, of course. And where do bankers get the money they lend? They 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 website 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 advisors 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 Brown is the author of Web of Debt: the Shocking Truth About Our Money System and How We Can Break Free. She can be reached through her website.
November 19, 2010
For decades, our politicians have been deeply addicted to government debt; they have stood idly by as millions of our jobs have been shipped overseas; and they have passed countless business-crushing regulations, and they never thought that it would catch up with us. Well, it has.
America has been living in the biggest debt bubble in the history of the world, and now that bubble is starting to pop. There has never been such an extended period of unemployment in the United States since the Great Depression, and millions of Americans are losing their homes. Homelessness is skyrocketing, tent cities are popping up everywhere, and countless numbers of American families are experiencing the soul-crushing despair that comes from desperately trying to hang on for month after month after month.
Now, because of the horrific hole that our politicians have dug for us, we are faced with some heartbreaking choices. For example, right now the U.S. Congress is deciding whether or not to extend long-term unemployment benefits for the nation’s jobless. Extending those benefits through the end of February would add another $12.5 billion to the U.S. national debt. But not doing it would cut off the only lifeline that many Americans have just in time for the holidays.
The extension of jobless benefits that was passed last summer expires on December 1st. If these long-term benefits are not renewed, approximately 2 million unemployed Americans will lose their checks.
But what can the U.S. Congress do? Just keep going into endless amounts of debt? As I have written about previously, the United States is never going to see another balanced budget ever again under the current system. The U.S. government is flat out broke. Somehow our politicians desperately need to find a way for the federal budget to stop hemorrhaging red ink.
There is no more “extra money” to spend. The U.S. government has piled up the biggest mountain of debt in the history of the world, and we are headed for a complete and total economic disaster because of it.
But what are we going to do? Are we going to let millions of Americans starve in the streets?
It’s not just the rapidly rising number of homeless Americans that is the problem. Millions of Americans are not going to be able to heat their homes this winter. Millions of others are going to have to choose between buying medicine and buying food, because they will not be able to afford both.
How would you like to be at a point where you could not go to the doctor because you knew that you could not pay the deductible? How would you like to be at a point where you had to decide whether to buy diabetes medicine or to buy macaroni and cheese to feed your family?
More than 42 million Americans are now on food stamps, and that number keeps going up month after month after month.
Just think about that.
42 million Americans would not be able to eat if the U.S. government did not give them handouts.
The safety net is getting awfully crowded.
If you really want to see some soul-crushing desperation, go check out the flood tunnels under the city of Las Vegas. But do not do this alone — it is very dangerous down there. Today, there are hordes of “tunnel people” who call those dark tunnels home. Nobody knows for sure how many people are down there (some people say that it is well into the thousands), but everyone agrees that the number is rapidly growing.
But in many major U.S. cities there are no flood tunnels to go to. Instead, in many areas of the United States, huge tent cities have sprouted. The following is a video news report from the BBC about the tent cities that are popping up all over America….
But it is not just “drug addicts” and the “mentally ill” that are going to these tent cities. One anonymous unemployed woman identified only as “Kaynonymous” is a highly educated professional who figures that she will end up in a tent city soon….
“I’m a 99er too. 53, female, single and once on track with an IT career. No one in their right mind would consider me for an IT position after being gone from the field for over 2 years. I have officially been a 99er since May 2010. In Aug. 2010 all of my savings and retirement funds were finally depleted—not only can I no longer make my mortgage payment, I can no longer afford utilities either. I’m just not sure that the 99ers ever had a voice outside of union organizers, and even with them it was too little too late. Guess I’ll be seeing ya’ll in the soup kitchens and tent cities. I do still have my tent…”
So we should just extend the long-term unemployment benefits, right? Well, according to a recent poll commissioned by the National Employment Law Project, 73 percent of Americans want Congress to continue paying out extended unemployment benefits.
But it is not just that simple.
America is broke.
The entire financial system is dying.
The U.S. government desperately needs to stop spending so much money.
But how can we turn our backs on people who are desperately hurting?
There are millions of Americans that have just about reached the end of their ropes. For example, one 43-year-old woman named Jacqueline recently expressed some of the extreme frustration that she is experiencing on her blog….
I am one of the 6 million poor, unemployed middle-aged Americans struggling without any safety net or income other than food stamps. I have resorted to salvaging scrap metal just to survive while keeping up an increasingly hopeless job search. On May 4th, 2010 just three weeks before my 43rd birthday, I got slapped with a diagnosis of very early stage glaucoma when I had a six year long overdue optical exam for badly needed new glasses. Without treatment — including ophthalmologist’s glaucoma monitoring exams — I will end up blind and permanently disabled. It’s not a matter of “if”, it’s a matter of when.
As a society, we will be judged by how we treat those who are the most vulnerable. It can seem easy to bash those who have lost everything, but someday you might end up in that position. In the following video, police in St. Petersburg, Florida are seen using box cutters to slice up the tents that the homeless were sleeping in….
Hopefully you were deeply disturbed by that video.
We have gotten ourselves into a giant mess, and things are only going to get worse.
Unfortunately, some extremely painful decisions are going to have to be made.
The truth is that we are so deeply in debt that the U.S. government just cannot be spending any extra money right now.
However, we also cannot turn our backs on millions of American families that are going to lose their homes and go hungry if we do not help them.
So what do we do?
What hurting Americans need most of all are not handouts — what they really need are good jobs.
But good jobs are being shipped overseas at a breathtaking pace. The United States has lost approximately 42,400 factories since 2001. The greatest economic machine in the history of the world is literally having its guts ripped out, and most of you kept voting in jokers who supported all of this de-industrialization.
For decades, our politicians kept telling us how wonderful globalization would be for America. We didn’t listen when Ross Perot warned us about “the great sucking sound” that these “free trade” agreements would bring about.
Well, look how all of that turned out. In 1985, the U.S. trade deficit with China was 6 million dollars for the entire year. In the month of August alone, the U.S. trade deficit with China was over 28 billion dollars.
In case you can’t figure it out, that means that 28 billion dollars of our national wealth was transferred to China in just one month.
This is happening month after month after month.
“This will keep America on its toes. America is going to have to compete. There is going to be a tug-of-war within the US between those who see globalization as a threat and those who accept we live in a open integrated world, which has challenges and opportunities.”
Yes, globalization is a threat. We should have never merged our economy with the economy of China, where workers make less than a tenth of what an American worker makes.
Jobs are flooding out of the U.S., and they are flooding into places like India and China where labor is far, far cheaper.
But without good jobs, how in the world are average Americans going to pay the bills? The answer is that an increasing number of them are not. 1.41 million Americans filed for personal bankruptcy in 2009 — a 32 percent increase over 2008.
Incomes are going down. According to the U.S. Census Bureau, median household income in the United States fell from $51,726 in 2008 to $50,221 in 2009.
Things are getting worse instead of getting better.
And things are going to continue to get worse because the U.S. government goes into more debt every single month, most state and local governments go into more debt every single month, and thanks to America’s exploding trade deficit, tens of billions of our national wealth gets transferred out of the United States every single month.
The U.S. economy is dying. There are going to be even more tent cities and even more hungry Americans. The scale of the economic nightmare that we are facing in the years ahead is going to be unimaginable.
So if you get to enjoy a warm dinner and you get to sleep in a warm bed tonight, please consider yourself to be very fortunate. Someday soon you also may find those things cruelly stripped away from you.