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The recent diary entitled An Open Letter to Michelle Obama simply goes way too far in its assertion of pure communism.  What's that you say?  It isn't about communism?  Well, that may be.  But it will be about communism if it ever rises above the noise level.  You can bet all yer chips that the various rightarded organizations will devote major resources to defining it exactly that way and that Obama would not have a snowball's chance in hell of being re-elected on this sort of total clown suit platform.

I want to start this diary with the announcement that ALL my friends are moonbats.  Absolutely every one of them are WAAAAAAAAAAAAAAAAY to the left of me.  Yet they are my chosen buds. I have no pals that are right of center nor any pals that are to the right of me.  I am most certainly not right of center and test out as solid liberal in every questionnaire I have ever taken.  I count myself as being among "the serious people". And I get angry and frustrated with people who cannot take positive steps toward their own chosen proper direction due to an uncompromising fascination with Nirvana.  I say all of this to set the tone of what I am about to propose.

Succinctly:   The Treasury Seigniorage idea should limit its scope to indirect control of the Federal Reserve to enforce the actual dual mandate of the FED.  What this amounts to is a nullification of the "Debt Limit" law and a possible extension of the power of the executive in regard to supporting the FED in  achieving "full" employment or a more acceptable level of un-employment.

The diary to which I am responding makes the same mistake as most of the other diaries I have seen concerning Treasury Seigniorage: It suggests a change in the American system of government and the American economy in drastic ways that do not reflect or agree with the current mindset of the majority of Americans.  However, if the sitting president focuses on the actual problem with which we are faced without totally altering the system, much can be accomplished.

I am not about to claim that the regular people in this nation (those who do not spend their time engrossed in the subject of political economy and monetary theory) are going to understand what this diary or MMT are actually about. And to expect that is to go much too far along the path to my personal Nirvana.  But the problems and the solutions can be greatly and honestly simplified so as to elicit enough understanding to affect the proper changes.  Attempting to go farther than that will simply scare the hell out of people and create yet another circus. Going farther than that is the same as the "far left" does when they try to present a more "progressive" world than the center is willing to support.  It does not matter that we are "correct" in our vision of Utopia.  That does not move anything.  Politics is the art of the possible and it should be a form of education.

In my own assessment of the Treasury Seigniorage gambit it does nothing other than obviate the "debt limit" law and advance the cause of eduction.  The executive cannot order the payment of funds draw from the public purse in pursuit of any action not duly appropriated or otherwise approved by the congress.  And it is the latter consideration -- "authorized by congress" --  that gives rise to the option of Treasury Seigniorage in support of the actions of the Federal Reserve.  And unless and until the congress acts to nullify these grants of authority, the grants are totally legal and constitutional.  In acting to withdraw these authorizations the congress must face the reality of MMT and duly educate the voting public or continue to lie to them.  This, then, is the real province of the "bully pulpit" and the role of Barak Obama in the current disorder.  By supporting the role of the Federal Reserve to properly devalue the dollar with respect to labor (I will drop my excursion into "labor theory of value") Obama will be acting with due regard for established law and countering the wishes of the Republican rich bitch butt suckers of the financial sector.  These latter individuals have pulled off the biggest heist in history and now want the "Gawd Almighty Dollar" to retain its pre-theft value.  The proper solution to a debt crisis is to devalue the unit of account.  That distributes the "pain" appropriately while retaining the current system.  After that devaluation phase, the system can be revisited; Not Before.

Due to the enforcement of the debt limit law, the FED is forced to sell near term bills and notes to fund the purchase of longer term treasuries.  This will not actually be sufficient to address the current problem of an overvalued dollar and overvalued debt holdings.  Forcing the Chinese to raise the value of their currency is also insufficient.  Only if the FED can disregard the current debt limit law or the Executive can devise a way to stay under the current debt limit, can the FED exercise its powers to address the current unemployment problem via "quantitative easing".  The "magic coin trick" can be used to accomplish this.

Probably, a more politically expedient way for the FED to address the current problem is for the FED to buy mortgages and MBS's with pixie dust money.  This is not an alteration to anything the FED has not already done, but it will probably be stopped by a Republican congress and the rightarded will call for abolishing the FED.  And the American people are ignorant enough to go along with it.

Originally posted to TruthMerchant on Sun Oct 02, 2011 at 12:50 PM PDT.

Also republished by Money and Public Purpose.

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Comment Preferences

  •  tipped for "rightarded" (0+ / 0-)

    seigniorage is nifty but Obama is not going to go there.

    Scientific Materialism debunked here

    by wilderness voice on Sun Oct 02, 2011 at 01:48:47 PM PDT

  •  Your proposal makes more sense than the (0+ / 0-)

    original diary but no 'magical coin trick' is going to happen. Too easy to use in attack ads if nothing else.

  •  This (2+ / 0-)
    Recommended by:
    TruthMerchant, psyched
    An Open Letter to Michelle Obama simply goes way too far in its assertion of pure communism.  What's that you say?  It isn't about communism?  Well, that may be.  But it will be about communism if it ever rises above the noise level.  You can bet all yer chips that the various rightarded organizations will devote major resources to defining it exactly that way and that Obama would not have a snowball's chance in hell of being re-elected on this sort of total clown suit platform.

    is not a reasoned criticism of my original post, but just an assertion giving your opinion. You're entitled to it, but you have to do better than this to get anyone who doesn't immediately share your opinion to believe it.

    In the original diary I proposed a 7-step plan. The core of it is these three steps:

    2) Stops talking about the US running out of money;

    3) PROVES that is not the case by using his authority under legislation passed in 1996 and minting a 1 oz. Proof Platinum $60 Trillion face-value coin, depositing it at the Federal Reserve, and the using the Mint's seigniorage profits to fill the Treasury General Account (TGA) with approximately $60 Trillion in electronic credits;

    4) Uses the proceeds to immediately pay off that part of the national debt that is owed to Federal trust funds, agencies, and the Federal Reserve, and pays off all Federal debt to other creditors as it comes due; without rolling it over by issuing new debt;

    I don't see you claiming that it is not legal for the President to take these steps. If he does so, you are claiming that the Republicans will call him "Communist" and that their propaganda campaign will drive him out of office. But how would that work?

    He would have the $60 T in the public purse and Congress, with a D majority in the Senate and the President's veto power could not stop the Treasury from immediately repaying all Governmentally held debt subject to the limit, including the debt held by the Fed. In addition, the President would repay an additional $2 Trillion ot so in privately-held debt debt as it comes due before the elections.

    Now how can anyone make a claim stick that repaying debt is "communism?" How can anyone make a claim stick that paying off debt held by the Chinese, Japanese, and Middle Eastern nations as these debt instruments fall due is communism? How can anyone make a claim stick that not issuing new debt is "communism?" Not that the Rs couldn't try. But people would totally laugh at them, if they claimed this, because there is no "frame" that can make this seem reasonable.

    If you think there is, please offer it, and outline how Frank Luntz, Karl Rove, and others can get that one over on people.

    Furthermore, if the President decides to do these things, then he will be doing the initial framing and it will be all about fiscal responsibility and repaying debt and talking the common sense that the currency issuer, the Government, surely has no need to borrow money from private parties, or from other Government agencies, because when it needs money it can always issue as demonstrated by the $60 T coin itself.

    He will also point out that his "magic coin" is completely in accord with legislation passed by Congress in 1996, so that by minting it he is acting in accordance with the law. He can also point out that in paying debt as it comes due he is meeting his responsibility under the 14th Amendment, and that in paying off the SS debt he is creating an actual SS Trust Fund in a sub-account of the TGA, in contrast to the bonds that now exist. How many people have shouted for such a "trust fund" in the past? And why wouldn't they just love the President for creating it now?

    Finally, he would make clear that he cannot use any part of the $60 T seigniorage profits to spend on things where the spending hasn't been appropriated by Congress. Then he can call on Congress to pass a Federal Job Guarantee program of the sort MMT economists propose. The FJG would not compete with the private sector since its wage would be the benchmark wage, and the purpose of the program would be to keep people employed until the private sector is strong enough to hire them back.

    Now tell me where is "the communism" is in any of this? Or any of what I've proposed in my 7 steps?

    After the President gets the coin minted and deposited, and calls on Congress to pass the FJG, the Congress is quite free to defeat his proposal. Clearly, The Rs will want to. The political question is whether they will dare to do so with about $52-$53 T still sitting in the TGA at the beginning of 2012, with an election coming up and 9.2% unemployment or perhaps more if the double-dip occurs by then? I don't think they'll dare; and if they do, then it's Obama in a landslide in 2012.

    •  I recommend your comment but: (0+ / 0-)
      I don't see you claiming that it is not legal for the President to take these steps. If he does so, you are claiming that the Republicans will call him "Communist" and that their propaganda campaign will drive him out of office. But how would that work?

      You keep talking about what is LEGAL and I want to talk about what is not just legal, but politically possible.  I offer the scenario that the Republicans will call him a communist and perhaps that is a bit too far.  They will most certainly call him a socialist and they will make it stick with a very large segment of the ignorant public.  The question is one of "How much can be done while advancing the goals of true representative government?".  The total destruction of the financial sector's version of "capitalism" is not to be taken lightly.  And that is essentially what he would be doing by following your plan.  If it were politically possible to do what you propose  I would be dancing around and smiling like a drunken sailor.  I might even put on a clown suit and carry a sign out in the street like a true moonbat.  But the financial forces in this nation are not about to let anything as dramatic as what you suggest take place.  Not with the owner class controlling as much of the means of communication as they do. There are some very strict limits to what can actually be achieved even if the president was competent and committed to the goals of monetary reform.

      Your plan to pay off the SS trust fund with magic money will bring out every FDR worshiper in the entire nation on the wrong side of the issue.  That "trust fund" is what is owed to the people who SAVED up all that money.  You propose to  pay them off with pixie dust.  That WILL NOT FLY.  You will be roasted and toasted immediately.  People ARE NOT READY for that large a change in the religious affinity they hold toward money.  It CANNOT be done that quickly.

      What can be done and should be done is to use seigniorage to empower the FED in its role as the controller of the currency with its current  mandate to arrest the unemployment problem.   That is done by using the seigniorage to reduce the holdings of Treasuries on the balance sheet of the FED. That will allow the FED to continue with true "quantitative easing", buying longer term debt WITHOUT selling any of its short term debt.  The FED should also stop paying interest on bank reserves and thus force the banks to lend or watch their money become eroded by inflation.  This is how serious people approach the problem.  The intent is to dramatically reduce the interest rates on home mortgages and to thus diminish the cost of home ownership while stabilizing the prices of residential real estate.

      Such an operation WILL get the point across without scaring the hell out of the natives.

      A landslide for the Democrats in 2012 is a cinch.  The only thing stopping them is Obama.  You are right about that part.  He has the power to do what needs to be done and he isn't using it.

      •  Sorry TM (1+ / 0-)
        Recommended by:
        psyched

        This:

        Your plan to pay off the SS trust fund with magic money will bring out every FDR worshiper in the entire nation on the wrong side of the issue.  That "trust fund" is what is owed to the people who SAVED up all that money.  You propose to  pay them off with pixie dust.  That WILL NOT FLY.  You will be roasted and toasted immediately.  People ARE NOT READY for that large a change in the religious affinity they hold toward money.  It CANNOT be done that quickly.

        is just plain wrong!

        All Federal money is "magic pixie dust." It is fiat money. Every penny. There is no distinction between existing money and newly created money that way. Also, creating a trust fund w/reserves in it, by paying off the SS bonds will not add to inflation, because the money will sit in the SS account, until SS payments are due. Instead, it will increase confidence in the SS program because critics won't be able to say that the word of the Gov is no good and that it won't pay SS when the money is needed, simply because it will already have paid. People have been complaining for years that there is no trust fund, that it is a fraud. So how can creating an SS sub-account actually containing reserves equal to the $2.7 T SS has built uo reduce confidence? That claim makes no sense!

        On what is politically possible, it's obvious to me and should be obvious to you, that if the President can do it without a by your leave from anyone and can easily justify it in the manner I've suggested, then it is politically possible. I agree that it's unlikely to be done, because Obama lacks both imagination and courage; but that's not politically impossible or impractical. That's just a president behaving badly.

        We must not confuse actions and decisions that are difficult for a politician with ones that are politically impossible. That's not good analysis. It's just a confusion of labels and categories. It's a category error.

        What I've outlined for Obama is perfectly feasible for him to do.  He can do it and he can win the ensuing political struggle even if he scares the shit out of "the natives." He will simply have to act like FDR, and not either himself or Clinton.

        On Obama getting called "socialist" or a "communist." They call him that now. All he has to do to counter that nonsense is to point out that the Government isn't establishing a dictatorship and taking over any private sector businesses; nor will it be just taking ownership of any private sector businesses, as is the case with socialism, except perhaps for the insolvent big banks which, if they collapse again, will this time be taken into resolution as provided before in the law.

        Again, I don't favor half measures in the use of seigniorage. As long as the debt is there, large portions of the public won't accept that the US has no solvency problems. To get them to accept it we have to prove it to them by showing how easy it is to pay off the public debt subject to the limit. Obama can do that with the $60 T coin and also place enormous pressure on Congress to stop talking about deficit reduction, debt, and long-term deficit problems. There are no such problems. They don't exist! Those are the must important lessons people must learn.

        Finally, I don't think you've really answered the questions I've put to you. What kind of media campaign can get people to believe that this move is socialist or communist in nature? You haven't answered that question. People already think the media is full of BS. Over the next few months Occupy Wall Street will be spreading all over the country and perhaps even the world. Already we see that the media's attempts to marginalize OWS are being rejected by people on the spot. There are limits to media power. And the boys who cried wolf about Obama being a socialist for 3 years when he's clearly been for Wall Street; won't be able to influence the masses by crying wolf again when they finally see Obama screwing Wall Street. So, he can win this fight. The question is does he want to win it?

        •  I WANT you to be right and me to be wrong (0+ / 0-)

          I WANT "Occupy Wall Street" to be the latter day incarnation of the "Storming of the Bastille".  But I just don't think that it will work out that way.  People are just NOT ready for the reality of fiat money.   As to the pres being a recreation of FDR it ain't gonna happen.  If for no other reason than the fact that FDR had both houses of the Congress with more than 61%  majorities.  The Republicans had no power whatsoever.  That is NOT how it is today.  In the 1934 mid term FDR got a senate of D69 and R25, but even on inauguration day he had it D59 and R36 and a house of D313 R117.

          http://en.wikipedia.org/...

          FDR nor the initial congress were elected as a progressives:

          From : wikipedia

          Economist Marriner Eccles observed that "given later developments, the campaign speeches often read like a giant misprint, in which Roosevelt and Hoover speak each other's lines."[61] Roosevelt denounced Hoover's failures to restore prosperity or even halt the downward slide, and he ridiculed Hoover's huge deficits. Roosevelt campaigned on the Democratic platform advocating "immediate and drastic reductions of all public expenditures," "abolishing useless commissions and offices, consolidating departments and bureaus, and eliminating extravagances" and for a "sound currency to be maintained at all hazards." On September 23, Roosevelt made the gloomy evaluation that, "Our industrial plant is built; the problem just now is whether under existing conditions it is not overbuilt. Our last frontier has long since been reached."[62] Hoover damned that pessimism as a denial of "the promise of American life ... the counsel of despair."[63] The prohibition issue solidified the wet vote for Roosevelt, who noted that repeal would bring in new tax revenues.
          •  I agree with (0+ / 0-)

            most of what you say here about FDR having a much better political position. However, Obama does have the power to get that coin minted and fill the public purse. He would have that power even if the Rs had a majority in both houses. So, he can get the $60 T and he can quickly pay off HALF the debt subject to the limit, without a by your leave from Congress. If they try to stop him then he can use the veto.

            My point is that he once he does that, the deficit reduction/debt shtick goes out the window. Gone forever! And people will then be ready for the reality of fiat money, because they will have seen the reality of it. We (myself and Scott Fullwiler) have argued at length that if the new fiat money is used to pay down Government debt to itself and the Fed, then there will be no demand-pull inflation from that use alone. When the pubic sees that then they will be ready to chance the use of it for other purposes.

            Then when he proposes the FJG, the Republican House has no excuses. A jobs program to end unemployment is not a leftist position. Everyone cares about unemployment including a majority of Rs and tea partiers. If O talks up the FJG as a support for the economy in down cycles and as creating price stability by creating a benchmark wage  which will anchor the whole private wage system, he will win the debate over the FJG, left- center- and right.

            As for OWS, I'm not saying that the corporates will be defeated over night or even in a short time. What I am saying is that OWS is an awakening that will spread in a manner similar to the tea party, and that it will result, in the end in the defeat of people who are too friendly to Wall Street and to business. If O mints that coin and proposes the FJG, OWS will buoy him up, demonstrate in favor of the FJG and create a very strong counter-pressure to corporatist opposition to this. The the $60 T coin is the trigger needed to ignite economic progressivism once again.

            One final thing. Check out this interview of Warren Mosler. Warren points out that high-level opinion is now very clear that the solvency issue fueling the deficit reduction efforts is a false issue, so he wonders why the elites still want to fight the battle of New Orleans when the war is over. The reason is that it's one thing for understand that solvency is not an issue as an intellectual matter. It's quite another to experience it as a reality. If there were $60 T in the Federal purse, the reality would be experienced. People would finally believe that there is plenty of money to do the things we need to do. We do need to worry about inflation; and to regulate it. But we don't need to worry about solvency and deficit reduction when the obvious need is to create jobs and prevent the lives of many millions of people from ending up in the trash can.

            •  FJG = communism (0+ / 0-)

              Your statement of

              Then when he proposes the FJG, the Republican House has no excuses. A jobs program to end unemployment is not a leftist position

              seems correct to you.  But it will be interpreted as "From each according to his ability and to each according to his need".  While people in general are all for a jobs program, the general public is not all for government directly providing the jobs.  Doing this in moderation is quite acceptable.  But government run decision making is not palatable to the majority of the people in this country.  They have been raised on the idea of free enterprise and they are not going to accept a government run economy in which the government decides which projects are to be staffed and bankrolled.   That is what you will get for your effort because you are going too far too fast.

              It is quite possible to mint enough magic to end any notion of a "debt limit" and to illustrate the efficacy of your proposition by simply paying down the debt on the books of the FED.  That returns us to the very sane position of the House of Representatives determining the spending and the FED smoothing any wrinkles in the dollar value arena.  The FED is designed to insulate the monetary system from the will of a knee jerk House.  The Republicans are chopping the FED off at the knees with their "debt limit" crap.  That is what needs to be understood.  And using Treasury seigniorage to remove that threat is quite enough to illustrate the full on version.  It is POLITICALLY POSSIBLE TO DO THIS NOW because there is no CRISIS looming.

              I can see the news article now: "Treasury to use seigniorage to reduce  government debt held by the FED".  This action by the Treasury will allow the Federal Reserve to address the unemployment portion of its dual mandate while remaining under the debt limit.

              YADA YADA YADA

              That most certainly raises the issue and makes the congress and the executive start telling the truth about the solvency crap.  

              And it is the proper way to do it because it does not go overboard on the government dictating what jobs are to be staffed. At present, the House of Representatives would probably open a new government wing dedicated to the support of CATO and the like, and hire tobacco company economists to fill it.

              •  next stage reply (0+ / 0-)

                TM, you said:

                . . . . But it will be interpreted as "From each according to his ability and to each according to his need".  While people in general are all for a jobs program, the general public is not all for government directly providing the jobs.  Doing this in moderation is quite acceptable.  But government run decision making is not palatable to the majority of the people in this country.

                I really don't think this is credible. There's a 30% output gap right; and their are between 25 - 30 million Americans looking for full-time work who can't get it. Why not? Because "free enterprise" and the private sector have FAILED to produce the necessary jobs. Not only that the private sector has failed to produce full employment since the 1960s. It came close during Clinton's years due to Greenspan's debt bubble, but it never got to that full employment figure of 3% of the work force between jobs and no under-employed.

                Now all the FJG proposal is saying, is that when the private sector cannot produce full employment, let the Government sector guarantee a job at a wage that won't compete with the private sector, in order to provide work for people who want to work; in order to keep their work-related skills and attitudes current, and in order to ensure that the people the private sector can't employ are employable when the private sector want to hire them. Notice that all this assumes that the chief employer will be the private sector, and that the FJG program will shrink to almost no people when and if the private sector grows enough to employ everybody who doesn't have a permanent civil service. In other words FJG jobs are transition jobs. They are jobs that keep people off welfare and employable. They are jobs that give work to people that is valuable to society to do things that the private sector cannot or will not do. That is not communism; it is just common sense, and it is not about replacing the private sector, it is about back-stopping it when it fails and destroys much of the country's net financial assets.

                They have been raised on the idea of free enterprise and they are not going to accept a government run economy in which the government decides which projects are to be staffed and bankrolled.   That is what you will get for your effort because you are going too far too fast.

                This just doesn't compute. The Government will staff FJG projects with guidance from State, local, and community authorities providing the Government with priorities in relation to what should be done. This is not in place of the private sector doing it. The projects will only be areas where the private sector is not employing people because it is not active. So, what you have is a situation where the private sector has already decided not to do certain projects; not to get involved because it evaluates those projects as unprofitable. So, at that point the government will get involved and enable projects that have great public value to be done with FJG labor. We know this will work, because we are still living off the the results of projects completed by the New Deal over 70 years ago.

                So, yes, the Government will make decisions where the private sector has already abdicated the field. But this will not compete with the private sector; because when business needs the labor employed by the government; it can always hire that labor away since the FJG wage will be the benchmark minimum wage, and all the private sector has to do is to beat that by a few % to hire the labor away.

                I don't think there's any communism in this at all, or any socialism either. It's just providing people with a real economic bill of rights and with freedom from want and freedom from fear.

                •  We are talking past one another (0+ / 0-)

                  You have your opinions concerning what is politically possible and I disagree with you.  We do not have any real disagreement over the validity of your position as regards monetary economics or economics in general. In THAT we are on the same page.  But with the current situation in political discourse being what it is, there is no way to educate the public as to the REALITY of fiat money or the concept of government as the insurance company it should be.  That's right.  Government is the social insurance company and only government can provide that function.  Your jobs program is an illustration of one way to do that.  But people have been so misled about OUR government and the way it was and is designed to operate that any hint of true fiat money is the boogerman.  The "government is out of control" crowd are winning in the voting booths.  Any proposal that would be politically viable would have to be so straight forward as to be utterly invincible.  Medicare Buy In is such a proposal in that it costs NOTHING and provides more freedom and more choice.  Yet the Democrats can't seem to do anything with it.  If they can't sell that, then they sure as hell can't sell what you are proposing.  You are unable to sell it too.  Not because you aren't correct in your analysis, but because you are too far outside the current discourse.

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